Securities and Exchange Commission v. Zouvas ( 2019 )

1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 Securit ies and Exchange Commission, ) No. CV-17-00427-PHX-SPL ) 9 ) 10 Plaintiff, ) ORDER vs. ) ) 11 ) Luke C. Zouvas, et al., ) 12 ) 13 Defendants. ) ) 14 ) 15 Before the Court is Plaintiff SEC’s (the “SEC”) Partial Motion for Summary 16 Judgment (Doc. 145)1; Defendant Larson, Jorgenson, and Schipretts’ Response (Doc. 17 163),2 Defendant Robb’s Response (Doc. 177),3 and Defendant Zouvas’s Response (Doc. 18 179)4; and Plaintiff’s Reply to Defendants Larson, Jorgenson, and Schiprett (Doc. 171),5 19 Plaintiff’s Reply to Defendant Robb (Doc. 181), and Plaintiff’s Reply to Defendant Zouvas 20 21 1 The accompanying documents include: Plaintiff’s Statement of Facts (Doc. 146); Plaintiff’s Declaration of Patrick R. Costello (Doc. 147); Plaintiff’s Declaration of 22 Keith A. O’Donnell (Doc. 148); and Additional Attachments to O’Donnell’s Declaration 23 (Docs. 149, 150, 151, 152). 2 The accompanying document is Defendant Larson, Jorgenson, and 24 Schipretts’ Response to Plaintiff’s Statement of Facts. (Doc. 164.) 25 3 The accompanying document is Defendant Robb’s Response to Plaintiff’s Statement of Facts. (Doc. 178.) 26 4 The accompanying document is Defendant Zouvas’s Response to Plaintiff’s 27 Statement of Facts. (Doc. 180.) 5 The accompanying document is Plaintiff’s Declaration of Carolyn Kurr. 28 (Doc. 172.) 1 (Doc. 182).6 2 Also before the Court is Defendant Larson, Jorgenson, and Schipretts’ Motion for 3 Summary Judgment (Doc. 153),7 the SEC’s Response (Doc. 159),8 and Defendant Larson, 4 Jorgenson, and Schipretts’ Reply (Doc. 173).9 5 I. BACKGROUND10 6 Israeli accountant, Asher Zwebner (“Zwebner”), organized Crown Dynamics 7 (“Crown”), a shell company. At the time of Crown’s initial public offering (“IPO”), Amir 8 Rehavi (“Rehavi”) and Chanah Zehavi (“Zehavi”) were Crown’s sole director and officer. 9 Following a 3-for-1 split stock before the IPO, Crown’s original subscription consisted of 10 7.5 million free-trading shares (the “Free-Trading Shares”), which various Israeli residents 11 held (the “Israeli Subscribers”), and 9 million restricted shares (the “Restricted Shares”), 12 which were held by Rehavi and Zehavi. In Fall 2011, Defendant Zouvas was approached 13 by Defendant Larson to conduct due diligence on Crown on behalf of Airware Labs. 14 Corporation (“Airware”), a company who wanted assistance in reverse merging Crown 15 into a publicly-traded corporation. Defendant Zouvas conducted due diligence on Crown, 16 which consisted of reviewing various documents. 17 Ultimately, the merger with Airware fell through, and a potential reverse merger 18 with Steven Aninye (“Aninye”) and his company, Zorah, LLC (“Zorah”), came to 19 20 21 6 The accompanying document is Plaintiff’s Second Declaration of Patrick R. 22 Costello. (Doc. 183.) 23 7 The accompanying document is Defendant Larson, Jorgenson, and Schipretts’ Statement of Facts. (Doc. 154.) 24 8 The accompanying documents include: Plaintiff’s Statement of Facts (Doc. 25 160); Plaintiff’s Declaration of Daniel Rubenstein (Doc. 161); and Additional Attachments to Rubenstein’s Declaration (Doc. 162). 26 9 Because it would not assist in resolution of the instant issues, the Court finds 27 the pending motions are suitable for decision without oral argument. See LRCiv. 7.2(f); Fed. R. Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 28 10 The following facts are undisputed unless otherwise noted. 1 fruition.11 Defendant Robb recommended a reverse merger, and Larson suggested Crown.12 2 Larson asked Zouvas to handle the formalities. Because Zouvas had just performed due 3 diligence on Crown for the merger with Airware, he did not conduct due diligence on 4 Crown for its potential merger with Zorah. Eventually, the parties settled on terms, and 5 Larson loaned $300,000 to Aninye so he could purchase shares.13 Once the funds from 6 Larson were deposited into Zouvas’s trust account—on behalf of Aninye—Zouvas sent 7 $231,127 of the $300,000 to Israeli bank accounts held by Zwebner and Caroline Adler 8 “(“Adler”). Zwebner told Zouvas that Adler would distribute the funds to the Israeli 9 Subscribers. 10 With the reverse merger complete, Larson and Robb asked Zouvas to transfer the 11 Free-Trading Shares from the Israeli Subscribers and to the investor group, which included 12 Jorgenson and Schiprett.14 In so doing, Jorgenson and Schiprett acquired 1,312,500 shares. 13 Zouvas also received shares in Crown, in exchange for his legal services, from an Israeli 14 Subscriber, Shira Mizrahi. Larson did not know Mizrahi. Jorgenson and Schiprett 15 subsequently sought to deposit their shares in a brokerage account, and upon request for 16 verification of payment, Zouvas confirmed that he had received the consideration for the 17 shares from Jorgenson and Schiprett and had remitted it to the Israeli Subscribers. 18 Larson eventually hired the Ritman Agency (“Ritman”) to engage in a 90-day 19 marketing campaign for Crown. Larson was the point of contact for Ritman and would 20 review and edit materials provided to him by Ritman. Similarly, Robb prepared press 21 releases. Ultimately, the Ritman campaign resulted in 83,760 shares being purchased by 22 Ritman’s broker network. 23 24 25 11 Zorah was in the business of specialized tracking devices and, as relevant here, owned the PomCom (“PomCom”) tracking technology. 26 12 This is disputed. 27 13 This is disputed. 14 This is disputed. Jorgenson and Schiprett invested in Crown because Larson 28 recommended it. Larson also loaned the two money to acquire shares in Crown. 1 II. STANDARD OF REVIEW 2 A court must grant summary judgment “if the movant shows that there is no genuine 3 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 4 Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). 5 Material facts are those facts “that might affect the outcome of the suit under the governing 6 law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute of 7 material fact arises if “the evidence is such that a reasonable jury could return a verdict for 8 the nonmoving party.” Id. In other words, where different inferences can be drawn, 9 summary judgment is inappropriate. Boulder Oro Valley LLC v. Home Depot USA Inc., 10 No. CV-17-00453-TUC-DCB, 2019 WL 2106419, at *1 (D. Ariz. Mar. 26, 2019) (quoting 11 Sankovich v. Life Ins. Co. of North Am., 638 F.2d 136, 140 (9th Cir. 1981)). 12 The party moving for summary judgment bears the initial burden of informing the 13 court of the basis for its motion and identifying those portions of the record, together with 14 affidavits, which it believes demonstrate the absence of a genuine issue of material fact. 15 Celotex, 477 U.S. at 323. If the movant is able to do so, the burden then shifts to the non- 16 movant who “must do more than simply show that there is some metaphysical doubt as to 17 the material facts,” and, instead, must “come forward with ‘specific facts showing that 18 there is a genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 19 U.S. 574, 586-87 (1986). 20 III. DISCUSSION 21 A. The SEC’s Partial Motion for Summary Judgment 22 The SEC argues that Defendants are liable for scheming to defraud under Section 23 17(a)(3) of the Securities Act, 15 U.S.C. section 77q(a)(3), because their actions 24 “demonstrate their negligent involvement in a scheme to manipulate the market for Crown 25 stock.” (Doc. 145 at 8.) 26 1. Section 17(a)(3) Discussion 27 a. Defendant Zouvas 28 As to Defendant Zouvas, the SEC argues that Zouvas failed in his due diligence 1 duties. (Doc. 145 at 9.) It argues that Zouvas should have verified that the Israeli 2 Subscribers were in fact legitimate investors, should have inquired into whether Zwebner 3 was authorized to act on their behalf, and should have verified the various documents’ 4 authenticities. (Doc. 145 at 9, 11-12; Doc. 171 at 9-10.) It further argues that Zouvas was 5 “not justified in relying on the signature guarantees affixed to the stock certificates” and 6 that he “should have known he could not rely on the SEC’s declaration of effectiveness of 7 Crown’s Form S-1.” (Doc. 145 at 10; Doc. 171 at 6-7.) Therefore, the SEC argues that “it 8 was Zouvas’ negligence at the outset that substantially assisted the other Defendants in this 9 case.” (Doc. 145 at 10, 12.) 10 Zouvas argues that he made a reasonable determination not to track down the Israeli 11 Subscribers based on the information provided to him by Zwebner. (Doc. 179 at 3.) He 12 argues that the SEC’s expert on the standard of care for attorneys does not take away the 13 negligence claim from the jury. (Doc. 179 at 3.) He argues that, in fact, the SEC’s own 14 expert admitted that attorneys are given leeway in their due diligence duties, and, thus, 15 based on these facts—which show a slue of documentation supporting the reasonable 16 inference that Zwebner was the Israeli Subscribers’ agent and that the documentation was 17 legitimate—a jury could easily find that he acted reasonably under the circumstances when 18 he reviewed the documentation. (Doc. 179 at 4-5.) 19 b. Defendants Larson, Jorgenson, and Schiprett 20 As to Defendants Larson, Jorgenson, and Schiprett, the SEC argues that Jorgenson 21 and Schiprett were negligent in: 22 “(i) selling Crown shares that were not lawfully paid for; (ii) sending their 23 brokerage an attestation letter saying they had paid the consideration for the shares; (iii) investing in Crown without realizing there was no active market 24 for the stock; (iv) not knowing they were part of an investor group that controlled the entire supply of Crown’s free-trading stock; and (v) selling 25 Crown stock into a market that was primed and inflated by Larson’s and 26 Robb’s marketing efforts.” 27 (Doc. 171 at 10-11.) 28 1 Defendants Schiprett and Jorgenson argue that the SEC has not provided any 2 evidence to support its claims that Schiprett and Jorgenson were negligent because their 3 actions were proper and legal. (Doc. 163 at 2.) They argue that there is no duty under the 4 securities laws that (1) requires an investor to research a company before it invests in its 5 stock or (2) that an investor may not buy stock in a company where the market is new, and 6 the investor will be buying all or a majority of the shares. (Doc. 163 at 2-4.) They also 7 argue that it was perfectly proper for them to rely upon “investment advice of a 8 knowledgeable [and long-time] friend.” (Doc. 163 at 2, 4.) They argue that they did, 9 indeed, buy and acquire Crown stock “because Larson recommended that they do so.” 10 (Doc. 163 at 3.) They argue that “There is nothing negligent – or in any other way wrongful 11 – about any of that.” (Doc. 163 at 3.) 12 As to Larson, the SEC argues that he was negligent in: 13 “(i) directing Zouvas to disburse the free-trading shares to Jorgenson, 14 Schiprett, and the investor group; (ii) advising Jorgenson and Schiprett when and how to sell the stock, and actually selling Jorgenson’s shares for him; 15 (iii) funding the Ritman Campaign with information he should have known 16 was misleading, while knowing that Aninye desperately needed capital in order to make Crown the success Ritman was telling the market it would be; 17 and (iv) engaging in wash trades to give the market the impression there was 18 interest in the stock.” (Doc. 171 at 11.) 19 Larson argues that directing and advising Jorgenson and Schiprett to buy and sell 20 Crown shares was completely legitimate. (Doc. 163 at 4.) He argues that he was not the 21 person who recommended the reverse merger with Zorah; rather, he simply “suggested that 22 Crown was a viable vehicle to effect the merger after Aninye had decided to proceed with 23 it.” (Doc. 163 at 4.) He argues that his actions regarding the Ritman campaign were proper 24 because there is ample evidence supporting the conclusion that he believed the Ritman 25 campaign’s materials were accurate and that he was justified in relying upon Aninye’s 26 financial forecast of Crown. (Doc. 163 at 5-6.) He argues that he engaged Ritman for the 27 purpose of encouraging investor interest in Crown stock, which is a legitimate and normal 28 1 practice. (Doc. 163 at 4.) He further argues that he was not negligent in “making a market 2 for the stock” because “selling shares into a new trading market (or recommending that 3 somebody else do so) is neither negligent not wrongful.” (Doc. 163 at 6.) As to wash trades, 4 he argues that he engaged in no such thing and, instead, “placed small buy orders in excess 5 of the number of shares available on offer.” (Doc. 163 at 7.) He argues that, in any event, 6 the SEC has not provided any evidence to suggest that the number of shares he traded was 7 sufficient to “create the appearance of a larger market.” (Doc. 163 at 7.) 8 c. Defendant Robb 9 The SEC argues that Robb was negligent in being intimately involved in the division 10 of Crown shares, approving and submitting press releases knowing that Aninye needed 11 capital, and because Robb was responsible for the press releases’ accuracy. (Doc. 145; Doc 12 181.) Specifically, it argues that Robb facilitated Crown’s reverse merger with Zorah and 13 the distribution of stock. (Doc. 145 at 10.) The SEC also argues that Robb’s and Larson’s 14 “investors” acquired Crown’s Free-Trading Shares without paying for them. (Doc. 145 at 15 12.) It further argues that Robb “primed Crown for sale by inflating the stock price.” (Doc. 16 145 at 14.) 17 Defendant Robb argues that he did nothing wrong and that his involvement with 18 Crown was perfectly legitimate. (Doc. 177 at 1.) Specifically, he argues that, though he did 19 speak with Larson regarding Zorah, he did not have any agreement with Aninye to divide 20 Crown shares as result of the merger nor did he have any involvement in negotiations for 21 the sale of Crown stock with the investors he “introduced” to Crown. (Doc. 177 at 2.) He 22 argues that there is no evidence to support the accusation that he directed Crown shares to 23 be transferred from the Israeli Subscribers to the investors he introduced to Crown. (Doc. 24 177 at 3.) He also argues that he believes the shares were, in fact, purchased by the investors 25 from the Israeli Subscribers, noting that “Zouvas took care of the sale of stock.” (Doc. 177 26 at 3.) Regarding the Ritman campaign, he argues that he sought the advice of Zouvas, 27 through Larson, to make sure the campaign “was legal and compliant with securities laws.” 28 (Doc. 177 at 3.) Robb also argues that, to the extent anyone is “at fault for any press releases 1 with incorrect information in them,” the fault is attributable to Aninye. (Doc. 177 at 3.) He 2 argues that any information he received for the press releases came from Aninye and that 3 Aninye “always authorized the content and the dissemination of all press releases issued 4 by Crown.” (Doc. 177 at 3.) Further, he argues that he cannot be held accountable for 5 knowing Crown was “in desperate need of capital” because Robb “was not involved in the 6 business operations of the company.” (Doc. 177 at 4.) 7 2. Section 17(a)(3) Analysis 8 a. Failure to Comply/Objections 9 The SEC argues that the Court should strike various statements of fact—or admit 10 them—in Defendant Larson, Schiprett, Jorgenson, and Zouvas’ Controverting Statement 11 of Facts because they did not comply with Local Rules 7.2(m)(2) and 56.1(b). (Doc. 171 12 at 6-7; Doc. 182 at 5.) The SEC further argues that it has cured two technical defects, 13 pointed out by Defendants Larson, Schiprett, and Jorgenson regarding its Exhibit 33 and 14 Mr. Cangiano’s and Mr. Robbin’s expert disclosure reports; thus, arguing the Court is now 15 able to review those documents. (Doc. 171 at 7-8.) Moreover, the SEC argues that the Court 16 should overrule Defendant Larson, Schiprett, and Jorgensons’ objections as to the other 17 exhibits it mentions in their Response because the documents had already been 18 authenticated “during the depositions that took place in this matter.” (Doc. 171 at 7, citing 19 Doc. 172 ¶¶ 7-28.) Lastly, Defendants Larson, Jorgenson, and Schiprett argue that the 20 Court should disregard certain sections in Mr. Cangiano’s report because they are 21 “impermissible generalization[s] not tailored to the facts of this case.” (Doc. 164 ¶ 70.) The 22 SEC responds that Mr. Cangiano, its expert on “market manipulation,” is permitted to 23 “testify to the usual factors inherent in a market manipulation and express an opinion as to 24 whether those factors are present.” (Doc. 171 at 8.) 25 After review, the Court finds that, though Defendants Larson, Schiprett, Jorgenson, 26 and Zouvas did not comply with Local Rules 7.2(m)(2) and 56.1(b), the Court declines to 27 strike essentially all of their responses to the SEC’s statements of fact. While the SEC is 28 correct in that they should not have included argument in their responses, the Court finds 1 that it can simply disregard portions of the response related to argument. As to the 2 statements of fact that Defendants Larson, Schiprett, Jorgenson, and Zouvas claim to have 3 no knowledge of, the Court declines to deem those admitted. Those particular statements 4 of fact either do not “concern” Defendants Larson, Schiprett, and Jorgenson or Zouvas, a 5 distinction that the SEC acknowledges (see Doc. 171 at 8 n.2), or they do sufficiently 6 “dispute” the fact. As to the unverified reports, the Court finds that the SEC’s curing of the 7 technical default is sufficient. Further, the Court is puzzled with Defendant Larson, 8 Schiprett, and Jorgensons’ argument that Mr. Cangiano’s expert testimony must be 9 “tailored to the facts of this case.” (Doc. 164 ¶ 70.) Federal Rule of Evidence 702 simply 10 does not require that an expert “tie” his conclusions and opinions to the specific facts of 11 the case; rather, his testimony needs to “help the trier of fact to understand the evidence.” 12 See Fed. R. Evid. 702 (Advisory Committee Notes, 2000 Amendment) (noting “the 13 venerable practice of using expert testimony to educate the factfinder on general 14 principles.”). Thus, it will not disregard those sections in Mr. Cangiano’s expert report.15 15 b. Legal Standard 16 Section 17(a)(3) of the Securities Act makes it unlawful for a person to, while in the 17 offer or sale of securities, “engage in any transaction, practice, or course of business which 18 operates or would operate as a fraud or deceit upon the purchaser.” 15 U.S.C. § 77q(a)(3). 19 This can be accomplished through “the use of any means or instruments of transportation 20 or communication in interstate commerce or by use of the mails.” Id. In other words, to be 21 held liable, a defendant must have (1) engaged in acts, practices, or courses of dealing 22 15 The Court notes that Defendant Larson, Jorgenson, and Schipretts’ argument 23 that “broad generalizations are not admissible summary judgment evidence” is, as stated, simply not accurate. Jinro Am. Inc. v. Secure Investments, Inc., 266 F.3d 993, 1005 (9th 24 Cir.), opinion amended on denial of reh’g, 272 F.3d 1289 (9th Cir. 2001), is easily distinguishable. The testimony there from the “expert” was improper because he was not 25 reliable and his testimony was prejudicial. The Court did not hold that, generally, generalizations are not proper. In fact, it went on to explain a case in which that expert’s 26 “generalization” testimony was proper, namely, because it was not racially inflammatory and unreliable, the main issues in Jinro. 266 F.3d at 1008-09. Likewise, Interwoven, Inc. 27 v. Vertical Computer Sys., No. CV 10-04645 RS, 2013 WL 3786633, at *6 (N.D. Cal. July 18, 2013) simply has no bearing here, as it is explicitly referring to the doctrine of 28 equivalents in a patent infringement case. 1 which operate as a fraud or deceit; (2) in the offer or sale of securities; (3) using interstate 2 commerce or the mails; and (4) been negligent. Aaron v. Sec. & Exch. Comm’n, 446 U.S. 3 680, 700-01 (1980). A violation of Section 17(a)(3) does not require evidence of scienter; 4 rather, a showing of simple negligence will suffice. S.E.C. v. Dain Rauscher, Inc., 254 F.3d 5 852, 856 (9th Cir. 2001); Aaron, 446 U.S. at 701-02. Simple negligence is the absence of 6 “reasonable prudence.” Dain Rauscher, 254 F.3d at 856. 7 “Scheme liability is derived from the first and third prongs in Section 17(a) and Rule 8 10b-5.” S.E.C. v. Fraser, No. CV-09-00443-PHX-GMSC, 2009 WL 2450508, at *9 (D. 9 Ariz. Aug. 11, 2009) (citing S.E.C. v. Fitzgerald, 135 F. Supp. 2d 992, 1028–29 (N.D. Cal. 10 2001)). The fraudulent scheme inquiry looks to whether the defendant participated or 11 substantially assisted in conduct that had a “principal purpose and effect of creating a false 12 appearance of fact in furtherance of the scheme.” Simpson v. AOL Time Warner Inc., 452 13 F.3d 1040, 1048 (9th Cir. 2006), vacated on other grounds by Simpson v. Homestore.com, 14 Inc., 519 F.3d 1041 (9th Cir. 2008). Specifically, “the defendant’s own conduct 15 contributing to the transaction or overall scheme must have had a deceptive purpose and 16 effect.” Id. 17 c. Discussion 18 (1) Defendant Zouvas 19 Here, first, the Court finds that, though Zouvas “disputes the credibility of [Mr. 20 Robbins’] expert witness report,” he does not explain why nor moves to strike Robbins’ 21 testimony nor offer a Daubert analysis. (See, e.g., Doc. 180 ¶ 20.) He also does not provide 22 the Court with any alternative standard of care to consider or another expert’s testimony. 23 Therefore, the Court treats as uncontroverted Robbins’ standard of care of an attorney. See 24 Carson v. Depuy Spine, Inc., 365 F. App’x 812, 814 (9th Cir. 2010) (citing Far Out 25 Productions, Inc. v. Oskar, 247 F.3d 986, 997 (9th Cir. 2001)) (stating that a “party 26 opposing summary judgment may not simply question the credibility of the movant to 27 foreclose summary judgment.”). 28 1 Second, Zouvas’s main contention in response to the SEC’s motion is that 2 negligence essentially cannot be determined at the summary judgment stage because it is 3 “a classic jury question[].” (Doc. 179 at 5.) He also argues that because the jury could, 4 upon the same set of facts, “draw inferences different from those offered by the SEC,” 5 summary judgment is inappropriate. (Doc. 179 at 5.) The Court disagrees. Zouvas is correct 6 in that questions of negligence are typically reserved for the jury; however, a court is not 7 precluded from granting summary judgment on a finding of negligence where the facts 8 lend themselves to only that conclusion. Indeed, if the Court took Zouvas’s argument at 9 face value, no court would ever be permitted to grant summary judgment in a negligence 10 case. 11 Further, Zouvas is also correct in that, if a jury could come to a different conclusion 12 on the same set of facts, summary judgment is inappropriate. However, that is not the case 13 here. A review of the uncontroverted facts (basically all of them) reveal that, indeed, “the 14 Court’s only choice is to accept the inferences offered by the SEC.” (Doc. 179 at 4.) The 15 parties agree that Zouvas reviewed varying documents in performing his due diligence 16 duties. However, as the SEC clarified, “the point here is not that Zouvas reviewed [the 17 documents], but that a review of the information, standing alone, is insufficient for a 18 reasonably prudent securities attorney in like circumstances to discharge his due diligence 19 obligations.” (Doc. 182 at 10.) The SEC’s expert, Mr. Robbins, opined on what a 20 reasonably prudent attorney would or should have done in Zouvas’s situation.16 For 21 example, Zouvas should have (1) inquired into his buying of shares from Mizrahi, a client 22 to whom he had a conflict of interest (Doc. 148-8 at 8-9); (2) verified that the funds he 23 wired to Zwebner were actually dispersed to the Israeli Subscribers (Doc. 148-8 at 7, 10); 24 and (3) confirmed Zwebner’s claim that he was the agent for the Israeli Subscribers (Doc. 25 148-8 at 7). Given Zouvas’s lack of contrary evidence as to the applicable standard of care 26 27 16 Because this is a reasonable prudence standard, it is irrelevant what Zouvas actually did—the inquiry is what a reasonably prudent attorney in his circumstances would 28 or should have done. 1 and reliance upon his due diligence work, which is undisputedly limited to reviewing 2 documents, no reasonable juror reviewing the applicable standards of care as offered in 3 Robbins’ expert report (which is not meaningfully disputed by Zouvas) could conclude that 4 Zouvas was not negligent in performing his due diligence duties under the circumstances. 5 As such, the Court grants summary judgment as to Defendant Zouvas. 6 (2) Defendants Larson, Jorgenson, and Schiprett 7 First, the Court rejects Defendant Larson, Schiprett, and Jorgensons’ argument that 8 the SEC did not adequately plead a Section 17(a)(3) claim based on negligence. A simple 9 review of the Complaint establishes that the SEC did, in fact, properly state a claim under 10 Section 17(a)(3). See Fecht v. Price Co., 70 F.3d 1078, 1082 n.4 (9th Cir. 1995) (stating 11 that Rule 9(b) permits general pleading for “condition of mind.”). Moreover, the SEC did 12 include negligence as grounds for Defendant Larson, Schiprett, and Jorgensons’ liability. 13 (See Doc. 1 ¶ 80.) Moreover, it is telling that Defendant Larson, Jorgenson, and Schiprett 14 did not move to dismiss nor move for a more definitive statement regarding this issue, 15 despite Claim II in the Complaint clearly identifying Section 17(a)(3) as the source of 16 liability. (Doc. 1 at 23.) 17 As to the merits, the Court will first address Defendants Schiprett and Jorgenson. 18 The Court finds that Schiprett and Jorgenson have provided sufficient evidence to survive 19 summary judgment. First, it is disputed whether the original Crown shares were, in fact, 20 lawfully acquired. (Doc. 146 ¶ 18; Doc. 164 ¶ 18.) Though the SEC argues that Jorgenson 21 and Schiprett have “no evidence to show the Israeli subscribers actually received the 22 consideration, or ever were bona fide investors to begin with” (Doc. 171 at 11), Jorgenson 23 and Schiprett point to the SEC’s evidence that there are share purchase agreements, records 24 listing ownership of the stock, and that stock was transferred to the Israeli Subscribers. 25 (Doc. 164 ¶ 18.) While the SEC argues that these documents do not “create a genuine 26 dispute, considering that the subscribers themselves have testified empathetically that they 27 were not legitimate investors,” the Court disagrees. It is for the jury to decide whether to 28 credit the authenticity of the relevant documents and Jorgenson and Schipretts’ testimony 1 or whether they will credit the Israeli Subscribers who allege they “were not legitimate 2 investors.” (Doc. 171 at 11.) 3 There is also a genuine issue of material fact as to whether these two investors, who 4 undisputedly relied upon their more experienced friend (Larson), should have researched 5 the company in which they ultimately bought and sold shares. The Court cannot say that a 6 reasonably prudent person in the same situation could not or should not have relied upon a 7 knowledgeable friend when deciding to buy and sell stock of a certain company. While it 8 might have been wise for Schiprett and Jorgenson to research Crown before ultimately 9 investing, as opposed to simply relying upon Larson’s recommendation, the Court cannot 10 say that they were negligent in deciding to not “look into” Crown before deciding to invest. 11 Further, there is evidence that Schiprett and Jorgenson bought and sold stock. (Doc. 12 164 ¶¶ 18, 52, 56, 58, 59.) It is disputed whether Larson forwarded the funds to Zouvas, 13 who forwarded the funds to Zwebner, who was to forward the funds to Alder for the benefit 14 of the Israeli Subscribers. It is also disputed whether the share purchase agreements of the 15 Israeli Subscribers are legitimate. Neither dispute, however, changes the inquiry into 16 whether a reasonably prudent person in their situation should not have relied upon their 17 friend’s recommendation to initially invest and ultimately sell stock without independently 18 researching the company or its current subscribers. Moreover, a jury could find that, even 19 if Larson ultimately did not send Zouvas the funds he loaned Jorgenson and Schiprett, that 20 that action is not negligence on the part of Schiprett and Jorgenson, but of Larson. 21 Ultimately, the Court agrees with Schiprett and Jorgenson in that the SEC has not 22 established that there was any duty—as opposed to engaging in better business acumen— 23 for Schiprett and Jorgenson to investigate and research, independently, in this situation, 24 whether it be to research Crown, its original subscribers, or the relevant market. As there 25 are genuine issues of material fact here, the Court denies summary judgment as to Schiprett 26 and Jorgenson. 27 As to Larson, the Court also finds that there are genuine issues of fact that could 28 lead a reasonable juror to conclude Larson was not negligent. First, like with Schiprett and 1 Jorgenson, the Court cannot conclude that Larson was negligent for “making a market for 2 stock” because he placed sell orders for Jorgenson and advised Schiprett when to sell. (Doc. 3 145 at 18.) Any negative inference a jury could draw from otherwise legitimate conduct is 4 not a matter for the Court to decide here. Second, it is undisputed that Larson hired Ritman 5 to engage in a marketing awareness program.17 He testified that he hired Ritman because 6 Aninye “would have the opportunity to raise capital, [and could] also pay [Larson] back. 7 And [Larson] had two of [his] very best friends in the whole world that were shareholders, 8 so [he] wanted to see the company succeed.” (Doc. 154-2 at 42.) Though Larson admitted 9 that he would make corrections to written pieces Ritman would send him, he testified that 10 he would have made changes if he believed the information was not accurate. Given that 11 Aninye had represented that his product was indeed legitimate and that he had a business 12 plan in place, along with contracts ready to be executed for the devices, a reasonable juror 13 could conclude that Larson was justified in relying upon Aninye’s projections about his 14 product and the capability of going to market. (Doc. 154-2 at 46.) This would be a 15 reasonable conclusion even if Larson was aware that Aninye needed more capital—like 16 Larson points out, publicly traded companies are always on the look out for capital, which 17 was one of the bases for Larson’s claimed purpose for hiring Ritman. (Doc. 154-2 at 46.) 18 Third, Larson testified that his initial “concern” in March of 2012 was due to his 19 belief that Aninye was unable to execute on the contracts he had for his products, not 20 because Larson believed Aninye lacked the necessary capital. (Doc. 154-2 at 46.) 21 Moreover, it is undisputed that Ritman’s summary does indeed list a projected revenue in 22 2012 as $5,591,000. (Doc. 151-7 at 3.) That projection however is not evidence alone that 23 Larson acted negligently in approving that summary. A reasonable juror could conclude 24 that, though the projected revenues might have been a stretch, that the summary was issued 25 well before Larson started to have “concerns” about the actual selling of products and 26 27 17 The Court overrules Defendant Larson, Schiprett, and Jorgensons’ objection that Ritman is not relevant in this matter because the SEC does not allege wrongdoing on 28 its part. (See e.g., Doc. 164 ¶ 67.) 1 Aninye’s increasing inability to successfully serve as CFO. Thus, a jury could find that the 2 projected revenue was not itself misleading or inaccurate. Fourth, as to the “wash trades,” 3 there is a dispute as to Larson’s purpose for “buying orders” of Crown stock. (Doc. 171 at 4 14.) The SEC claims that “a reasonable person in Larson’s circumstances would have not 5 bought and sold stock of a company whose very foundation was in question the whole 6 time.” That conclusion, however, is susceptible to debate. Larson testified that he wanted 7 Crown to succeed, that he had himself invested in the company, and believed in Aninye’s 8 products and his representations about the ability to ultimately go to market. 9 Thus, there are genuine disputes of material fact as to Defendants Larson, 10 Jorgenson, and Schiprett, which preclude the Court from granting summary judgment. 11 While a reasonable juror could conclude on these facts that Defendants Larson, Jorgenson, 12 and Schiprett did engage in a fraudulent scheme and were negligent, the Court cannot 13 conclude that as a matter of law. 14 (3) Defendant Robb 15 Here, the Court finds that the evidence provided by Robb is enough to survive 16 summary judgment. Though it is uncontroverted that the Israeli Subscribers 17 “empathetically” deny that they were legitimate investors (Doc. 181 at 6), that does not 18 require a finding that Robb was negligent in not initially pursuing that inquiry. Further, 19 though Zouvas stated in his deposition that Robb “directed him to transfer Crown shares 20 to their investors,” he also qualified that statement and explained that, when he said 21 “transfer,” he meant that Robb and Larson would provide him information, presumably, 22 about the “investors.” (Doc. 181 at 6.) Also, simply because Robb knew personally the 23 owners of Netlynx Solutions Limited and Opal Management Incorporated—two investors 24 of Crown—or otherwise “brought” certain investors to Crown, does not compel a finding 25 of negligence. Indeed, Robb has argued that he did “introduce investors to Crown” but that 26 they “acted independently of Robb and Larson.” (Doc. 177 at 2.) The fact that Robb signed 27 “an irrevocable stock power on [Netlynx’s] behalf to move the process forward” and 28 facilitated “getting Netlynx’s share certificate transferred” does not mandate a finding that 1 the “brought-in investors” did not act independently. A reasonable juror could conclude 2 that Robb was helping his longtime friend with business—not usurping Netlynx’s 3 independence. 4 Further, the Court cannot say that a reasonable juror would be compelled to 5 conclude that Robb’s knowledge that Crown “needed capital” is indicative of negligent 6 conduct in releasing the press releases. It is not remarkable that a company “needs” capital 7 to function, and it is certainly not unsurprising that Robb would state that “Crown is a 8 publicly traded company and there’s – you know, there’s investors involved.” (Doc. 181 at 9 13). That is an undisputedly true statement; whether the jury will infer a deceptive motive 10 or that Robb should have known better or whether it could infer that Robb was obviously 11 aware and concerned that investors would be affected by Crown’s success or failure, is not 12 for the Court to decide. This is further supported by Robb’s testimony that Aninye had told 13 him Aninye had “already raised capital. So [he] didn’t know what – to what level [Aninye] 14 needed capital.” (Doc. 178-2 at 3.) 15 The SEC also goes to great lengths to explain how the situation of Robb’s “temper 16 tantrum” and general actions regarding Aninye’s lack of knowledge regarding the raising 17 of capital, stock trading, and generally of his inability to run a successful publicly traded 18 company fit its theory that he was negligently pushing inaccurate press releases into the 19 market. (Doc. 181 at 10.) However, Robb offers evidence explaining that Aninye was 20 involved in the drafting process of the press releases (and was asked to review and change 21 the material), that the information from the press releases came from Aninye (at least in 22 part from his own “projection” paper), and that Robb believed, based on Aninye’s 23 representations, that the product was ready to enter the market. (Doc. 178-2 at 2-4.) 24 Whether one will credit Robb or the SEC’s version of who and what Robb should have 25 relied upon in determining that PomCom was or could have been ready to enter the market 26 is for the jury. The Court cannot say that the SEC’s narrative is the only theory a reasonable 27 jury could conclude on these facts. Therefore, the Court denies summary judgment as to 28 Robb. 1 3. Injunctive Relief 2 Injunctive relief is appropriate where the SEC establishes (1) a violation of the 3 federal securities laws and (2) a reasonable likelihood of future violations. SEC v. Fehn, 4 97 F.3d 1276, 1295 (9th Cir. 1996). In determining whether there is a likelihood of future 5 violations, courts consider the following factors: (1) the degree of scienter involved; (2) 6 the isolated or recurrent nature of the infraction; (3) the defendant’s recognition of the 7 wrongful nature of his conduct; (4) the likelihood, because of defendant’s professional 8 occupation, that future violations might occur; (5) and the sincerity of his assurances 9 against future violations. Id. 10 Here, the claim against Zouvas is the only appropriate claim to be considered for 11 injunctive relief. The SEC argues that all of the factors weigh in favor of injunctive relief. 12 (Doc. 145 at 19.) Zouvas did not respond to this argument. Having reviewed the Fehn 13 factors and considering Zouvas’s lack of argument, the Court finds that a permanent 14 injunction here would be appropriate to enjoin Zouvas from continuing to violate the 15 securities laws. 16 4. Disgorgement/Prejudgment Interest 17 “Another remedy available in SEC actions involving securities violations is 18 disgorgement of profits.” S.E.C. v. Indigenous Glob. Dev. Corp., No. C-06-05600 JCS, 19 2008 WL 8853722, at *17 (N.D. Cal. June 30, 2008), aff’d, 402 F. App’x 250 (9th Cir. 20 2010) (citing SEC v. Rind, 991 F.2d 1486, 1493 (9th Cir. 1993)). One of the purposes of 21 disgorgement is to make securities violations unprofitable. Id. A court has wide discretion 22 in determining if disgorgement is appropriate and if prejudgment interest should be 23 awarded for the purpose of “ensur[ing] that the wrong-doer does not profit from his 24 wrongful conduct.” Id. (citing SEC v. Cross Fin. Servs., Inc., 908 F. Supp. 718, 734 (C.D. 25 Cal. 1995)). 26 Again, the only claim at issue here is against Zouvas, to which he did not respond. 27 As such, after reviewing the SEC’s calculations (Doc. 147 at 2-3 ¶¶ 4, 5) and considering 28 the purpose of disgorgement and assessing prejudgment interest, the Court finds that the 1 calculations are reasonable and that the SEC is entitled to disgorgement in the amount of 2 $79,173 and prejudgment interest in the amount of $15,296.55. 3 5. Advice of Counsel Defense 4 Defendants Larson, Jorgenson, Schiprett, and Robb argue that they are entitled to 5 rely upon an advice of counsel defense. Defendant Zouvas argues that he is entitled to an 6 “advice of client” defense. An advice of counsel defense requires the defendant to prove 7 that he: (1) made a complete disclosure to counsel; (2) requested counsel’s advice as to the 8 legality of the contemplated action; (3) received advice that it was legal; and (4) relied on 9 the advice in good faith. S.E.C. v. Goldfield Deep Mines Co. of Nevada, 758 F.2d 459, 467 10 (9th Cir. 1985) (citing S.E.C. v. Savoy Industries, Inc., 665 F.2d 1310, 1314 n.28 (D.C. Cir. 11 1981)). 12 As to Zouvas’s “advice of client” defense, the SEC argues that it should fail because 13 the Court should find that Zouvas was negligent here. (Doc. 145 at 22.) Zouvas does not 14 address this claim in his Response. The Court has found that Zouvas as negligent in relying 15 upon his clients and third parties. Thus, to the extent this defense is applicable, the Court 16 grants summary judgment as to Zouvas. 17 As to Larson, he does not address the first element of the defense because, he argues, 18 “The whole point of engaging Zouvas was that relevant facts would be uncovered through 19 due diligence.” (Doc. 163 at 10 n.2.) While this is unavailing, the Court finds that there is 20 specific documentation showing what Larson asked of Zouvas. (Doc. 163 at 8-9.) Next, it 21 is undisputed that Larson retained Zouvas to ensure the Crown merger complied with 22 applicable law—that the “I’s [were] dotted T’s crossed.”18 (Doc. 163 at 8.) Lastly, Zouvas 23 did indeed provide Larson with his legal advice, to which Larson relied. (Doc. 163 at 9.) 24 Thus, Larson may proceed with this defense. As to Jorgenson and Schiprett, they also do 25 not address the first element because “The whole point of engaging Zouvas was that 26 27 18 The Court notes that the SEC is correct in that this defense would be limited to “Zouvas’s advise for the initial acquisition of Crown, not in connection with the later 28 sale of stock in the market.” (Doc. 171 at 16; Doc. 164 ¶ 119.) 1 relevant facts would be uncovered through due diligence.” (Doc. 163 at 10 n.2.) However, 2 here, unlike with Larson, Jorgenson and Schiprett do not meet elements one and two, and, 3 thus, they may not claim an advice of counsel defense. 4 As to Robb, he has failed to establish an advice of counsel defense. Though he states 5 that he did rely on advice from Zouvas, though through Larson, he admits that he did not 6 retain Zouvas to provide him any legal advice related to Crown, that Robb was not a client 7 of Zouvas, and that he did not provide any information to Zouvas. (Doc. 178 ¶¶ 124-26.) 8 Other than conclusory stating that he “made disclosures (if applicable)” to Zouvas, Robb 9 points to no supporting evidence for this statement. (Doc. 177 at 4.) Thus, he fails to 10 establish an advice of counsel defense. 11 Thus, based on the reasons stated above, the Court grants summary judgment as to 12 Zouvas and denies summary judgment as to Larson, Schiprett, Jorgenson, and Robb. The 13 Court will enjoin Zouvas and assess disgorgement and prejudgment interest to account for 14 his securities violations. Only Defendant Larson may proceed with the advice of counsel 15 defense. 16 B. Larson, Jorgenson, and Schipretts’ Motion for Summary Judgment 17 Defendants Larson, Jorgenson, and Schiprett move for summary judgment on all 18 claims (Counts I-IV) because “Every one of the SEC’s claims against Larson, Schiprett, 19 and Jorgenson depends on the existence of a nominee trading scheme. Because there is no 20 scheme, the SEC’s claims fail, and judgment in favor of Larson, Schiprett, and Jorgeson is 21 appropriate.” (Doc. 153 at 1.) 22 1. Discussion 23 There are a few “new” facts alleged in Defendant Larson, Jorgenson, and Schipretts’ 24 motion. Those include: (1) that Larson, Jorgenson, and Schiprett have known each other 25 for approximately 20 years; (2) for almost a decade, Jorgenson and Schiprett have worked 26 at National Cash and Credit, LLC (“NCC”), a pawn shop and lending business owned by 27 Larson; and that (3) the three of them had discussed for years that Jorgenson and Schiprett 28 wanted to invest in NCC but could not because they did not have the capital. (Doc. 153 at 1 4.) Larson recommended that Schiprett and Jorgenson buy some of the Crown shares in 2 hopes that they would make some money, and Larson loaned them the cash to do so. (Doc. 3 153 at 4-5.) Larson, Jorgenson, and Schiprett also allege that, after Jorgenson and Schiprett 4 bought Crown shares and sold them—making a profit of about $910,000—they “used the 5 bulk of those proceeds to fund the long discussed purchase of 70% of NCC.” (Doc. 153 at 6 5.) Once Schiprett and Jorgenson accumulated their $910,000, they were able to purchase 7 the $950,000 needed to buy their 70% interest in NCC.19 (Doc. 153 at 5.) 8 The crux of Defendant Larson, Jorgenson, and Schipretts’ motion is that the SEC’s 9 claims against them are based on Jorgenson and Schipretts’ status as “nominees” of Larson, 10 and that, because they are not nominees, summary judgment is appropriate. (Doc. 153 at 11 6.) They also argue that there is no evidence of a scheme. (Doc. 153 at 6.) They also argue 12 that the SEC has no evidence proving scienter. (Doc. 153 at 7-8.) The SEC claims there is 13 evidence both establishing scheme liability and scienter; thus, summary judgment is 14 improper. (Doc. 159.) Specifically, it argues that the following items are in dispute: (1) the 15 $300,00 loan to Aninye from Larson, (2) Larson’s motivation for getting involved with 16 Crown and his role in the company, (3) whether Larson actually loaned Jorgenson and 17 Schiprett money to acquire Crown shares, (4) Jorgenson’s and Schiprett’s use of proceeds 18 from their Crown shares, (5) whether Larson did actually trigger reporting requirements, 19 (6) Larson’s true intentions in funding the Ritman Campaign, (7) Larson’s thoughts on why 20 he was trading on his own, and (8) why Larson included his brother in Crown. (Doc. 159 21 at 6-18.) 22 2. Analysis 23 Defendant Larson, Jorgenson, and Schipretts’ Motion for Summary Judgment is 24 based on the same underlying facts and alleged “scheme liability,” which the Court 25 addressed in the SEC’s Partial Motion for Summary Judgment addressing Section 17(a)(3) 26 19 Larson, as a certified public accountant, calculated the purchase price of 70% 27 of his company, National Cash and Credit, LLC. (Doc. 153 at 5.) Schiprett and Jorgenson were able to “fund[] additional amounts through capital contributions to NCC” to make up 28 the difference. (Doc. 153 at 5.) 1 liability. Here, however, the Court is also assessing claims which require scienter, which 2 can be proved either by recklessness or actual knowledge, Gebhart v. S.E.C., 595 F.3d 3 1034, 1040 (9th Cir. 2010). 4 Here, there is a genuine issue of fact as to whether Larson acted with scienter. A 5 jury could determine that Larson’s timing of the Ritman campaign, along with his 6 recommendation that Jorgenson and Schiprett sell during that time, is evidence of his intent 7 to manipulate the market to gather short term gains for his investor group, or, in other words 8 that he “ engaged in conduct that had the principal purpose and effect of creating a false 9 appearance of fact.” S.E.C. v. Fraser, No. CV-09-00443-PHX-GMSC, 2009 WL 2450508, 10 at *10 (D. Ariz. Aug. 11, 2009). This is especially true where the SEC points to evidence 11 that suggests Larson was wash selling. (Doc. 159 at 16.) The SEC also points to evidence 12 controverting that Larson’s loan to Aninye and Larson’s loan to Jorgenson and Schiprett is 13 suspect and a sham. (Doc. 159 at 6, 9.) However, the Court cannot find that a reasonable 14 jury would impute scienter on Jorgenson and Schiprett. The SEC admits that Jorgenson 15 and Schiprett bought stock in NCC—there is simply no evidence to establish a level of 16 recklessness or knowledge sufficient for scienter. (Doc. 159 at 10-11.) Further, the Court 17 has already determined that fact issues remain as to the Section 17(a)(3) claims against 18 Defendants Larson, Schiprett, and Jorgenson. 19 3. Conclusion 20 For the reasons stated above, the Court grants summary judgment as to Counts I, 21 III, and IV as to Defendants Jorgenson and Schiprett but denies summary judgment as to 22 them on Count II. The Court denies summary judgment as to Larson for all Counts. 23 IV. CONCLUSION 24 Based on the reasons stated above, the Court grants Plaintiff’s request for summary 25 judgment against Zouvas for Count II but denies summary judgment as to Larson, 26 Schiprett, Jorgenson, and Robb for Count II. The Court will enjoin Zouvas and assess 27 disgorgement and prejudgment interest to account for his securities violations. Only 28 Defendant Larson may proceed with the advice of counsel defense. Further, the Court 1 grants summary judgment as to Counts I, III, and IV as to Defendants Jorgenson and 2 Schiprett but denies summary judgment as to them on Count II. The Court denies summary 3 judgment as to Larson for all Counts. Accordingly, 4 IT IS ORDERED: 5 1. That Plaintiff’s Partial Motion for Summary Judgment (Doc. 145) is granted in 6 part and denied in part; 7 2. That Defendant Larson, Jorgenson, and Schipretts’ Motion for Summary 8 Judgment (Doc. 153) is granted in part and denied in part; 9 2. That Defendant Zouvas, Jorgenson, Schiprett, and Robbs’ advice of counsel 10 defenses are stricken; 11 3. That Defendant Zouvas is permanently restrained and enjoined from violating, 12 directly or indirectly, Section 17(a)(3) of the Securities Act, 15 U.S.C. § 77q(a)(3), in the 13 offer or sale of any security, by using any means or instruments of transportation or 14 communication in interstate commerce or by using the mails, directly or indirectly, to 15 engage in any transaction, practice, or course of business which operates or would operate 16 as a fraud or deceit upon the purchaser. As provided in Rule 65(d)(2) of the Federal Rules 17 of Civil Procedure, this paragraph also binds those who receive actual notice of this Order 18 by personal service or otherwise, which include: (i) Defendant Zouvas’s officers, agents, 19 servants, employees, and attorneys; and (ii) other persons in active concert or participation 20 with Defendant Zouvas or with his officers, agents, servants, employees, and attorneys; 21 4. That Defendant Zouvas is liable for disgorgement, representing profits gained as 22 a result of the conduct alleged in the Complaint, together with prejudgment interest, as set 23 forth below, pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d): 24 Zouvas is liable for disgorgement of $79,173 and prejudgment interest of 25 $15,296.55 for a total judgment of $94,469.55; 26 Defendant Zouvas must satisfy his respective obligation by paying the above total 27 judgment amount to the SEC within fourteen (14) days after entry of this Order. Defendant 28 Zouvas may transmit payment electronically to the Commission, which will provide 1 detailed ACH transfer/Fedwire instructions upon request. Payment also may be made 2 directly from a bank account via Pay.gov through the SEC website at 3 http://www.sec.gov/about/offices/ofm.htm. Defendant Zouvas may also pay by certified 4 check, bank cashier’s check, or United States postal money order payable to the “Securities 5 and Exchange Commission,” which shall be delivered or mailed to: 6 Enterprise Services Center 7 Accounts Receivable Branch 6500 South MacArthur Boulevard 8 Oklahoma City, OK 73169 9 and shall be accompanied by a letter (i) identifying the case title, civil action number, and 10 name of this Court; (ii) referencing Defendant Zouvas as a defendant in this action; and 11 (iii) specifying that payment is made pursuant to this Order. Defendant Zouvas shall 12 simultaneously transmit photocopies of evidence of payment and case identifying 13 information to the SEC’s counsel in this action. By making these payments, Defendant 14 Zouvas relinquishes all legal and equitable right, title, and interest in such funds and no 15 part of the funds shall be returned to him. The SEC shall send the funds paid pursuant to 16 this Order to the United States Treasury. 17 The SEC may enforce the Court’s judgment for disgorgement and prejudgment 18 interest by moving for civil contempt (and/or through other collection procedures) at any 19 time after fourteen (14) days following entry of this Order. Defendant Zouvas shall pay 20 post judgment interest on any delinquent amounts pursuant to 28 U.S.C. § 1961; 21 5. That any debt for disgorgement, prejudgment interest, civil penalty or other 22 amounts due by Defendant Zouvas under this Order or any other judgment, order, consent 23 order, decree or settlement agreement entered in connection with this proceeding, is a debt 24 for the violation by Defendant Zouvas of the federal securities laws or any regulation or 25 order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 26 11 U.S.C. § 523(a)(19); 27 28 1 6. This Court shall retain jurisdiction of this matter and of Defendants for the purposes of enforcing the terms of this Order and for resolving the SEC’s remaining claims 3 | and remedies against Defendants in the Complaint; and 4 7. That the Clerk shall enter judgment accordingly. 5 Dated this 23rd day of August, 2019. 6 7 8 10 United States District kudge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24