SEC v. Bronson ( 2018 )

17-2096
SEC v. Bronson
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
AMENDED SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit,
held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of
New York, on the 20th day of November, two thousand eighteen.
PRESENT:
REENA RAGGI,
PETER W. HALL,
RICHARD J. SULLIVAN,
Circuit Judges.
_____________________________________
United States Securities and Exchange
Commission,
Plaintiff-Appellee,
v. 17-2096
Edward Bronson, E-Lionheart Associates, LLC,
DBA Fairhills Capital, Inc.,
Defendants-Appellants,
Fairhills Capital, Inc.,
Relief Defendant-Appellant.
_____________________________________
FOR PLAINTIFF-APPELLEE: Haimavathi V. Marlier, Esq., Rachel
McKenzie, United States Securities and
Exchange Commission, New York, N.Y.
FOR DEFENDANTS-APPELLANTS: Edward Bronson, Esq., pro se, Ossining,
N.Y.
Appeal from judgment of the United States District Court for the Southern District of New
York (Karas, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is AFFIRMED.
Appellants Edward Bronson, E-Lionheart Associates, LLC, and Fairhills Capital, Inc.
(“FCI”) appeal from the district court’s grant of summary judgment in favor of the Securities and
Exchange Commission (the “SEC”). The SEC sued Bronson and his company, E-Lionheart, for
violating the securities registration requirements set forth in section 5(a) and (c) of the Securities
Act of 1933, 15 U.S.C. § 77e(a) and (c) (“Section 5”). The SEC also sued FCI, another company
owned by Bronson, as a relief defendant for unjust enrichment. We assume the parties’
familiarity with the underlying facts, the procedural history of the case, and the issues on appeal.
We review a district court’s grant of summary judgment de novo, mindful that summary
judgment is appropriate only “if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Sousa v. Marquez, 702
F.3d 124, 127 (2d Cir. 2012) (quoting Fed. R. Civ. P. 56(a)). We review the imposition and
calculation of disgorgement liability for an abuse of discretion. See SEC v. AbsoluteFuture.com,
393 F.3d 94, 96 (2d Cir. 2004) (per curiam).
Here, the district court correctly held that Bronson and E-Lionheart violated Section 5.
Rule 504(b)(1)(iii) of the Securities Act’s Regulation D, 17 C.F.R. § 230.504(b)(1)(iii), exempts
from registration the offers and sales of securities that are conducted according to state law, id.
Although Bronson claimed to meet this exemption through section 73-207(b)(8) of the Delaware
Securities Act, Del. Code Ann. tit. 6, § 73-207(b)(8), the district court concluded that Bronson
failed to establish a sufficient nexus between Delaware and the transactions at issue to trigger that
state law. The court properly rejected Bronson’s nexus argument, which focused on the fact that
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E-Lionheart and FCI were incorporated in Delaware, both entities had a virtual Delaware office,
and E-Lionheart’s subscription agreements contained Delaware choice of law provisions. See
FdG Logistics LLC v. A&R Logistics Holdings, Inc., 131 A.3d 842, 854–57 (Del. Ch. 2016) (ruling
that there was insufficient nexus to trigger application of the Delaware Securities Act where the
parties were based outside of Delaware and did not conduct transactions within Delaware,
notwithstanding the fact that the parties were incorporated in Delaware and included Delaware
choice of law provisions in their merger agreement); Eurofins Panlabs, Inc. v. Ricerca Biosciences,
LLC, No. 8431, 2014 WL 2457515, at *18 & n.136 (Del. Ch. May 30, 2014) (finding Delaware
choice of law provision and incorporation in Delaware insufficient nexus to state to trigger
Delaware Securities Act). As the district court noted, Appellants’ position raises serious
Commerce Clause questions by requiring application of a state “blue sky” law to interstate
transactions. See, e.g., FdG Logistics LLC, 131 A.3d at 846 (“[S]uch an interpretation would
lead to the bizarre result of converting a blue-sky statute that the [Delaware] Legislature intended
to regulate intrastate securities transactions into one that would regulate interstate securities
transactions.”).
The district court likewise did not abuse its discretion in imposing disgorgement of profits
on Appellants and in calculating their liability. A district court has “broad equitable power to
fashion appropriate remedies” for federal securities law violations. SEC v. First Jersey Sec., Inc.,
101 F.3d 1450, 1474 (2d Cir. 1996). Disgorgement, as a remedy for violation of the securities
laws, “deprive[s] violators of their ill-gotten gains, thereby effectuating the deterrence objectives
of those laws.” Id. Bronson argues that disgorgement is barred by the five-year statute of
limitations for the 53 new issuers who were named in the SEC’s motion for summary judgment,
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but were not named in its complaint. The statute of limitations provides that actions for
disgorgement “must be commenced within five years from the date when the claim first accrued.”
28 U.S.C. § 2462; Kokesh v. SEC, 137 S. Ct. 1635, 1645 (2017). Bronson’s argument fails
because the SEC brought a timely claim for disgorgement: it filed suit in August 2012 and based
its action on Section 5 violations that began in August 2009. The SEC sought, through its action,
disgorgement for “all ill-gotten gains generated from all of the Defendants’ unregistered sales of
securities,” which included the possibility of more issuers than those named in the complaint.
App. 40. The SEC did not bring a new claim in its motion for summary judgment. Instead, it
expanded the scope of its existing disgorgement claim when it added a chart with additional
transactions from additional issuers. See SEC v. Payton, No. 14-cv-4644, 2016 WL 3023151, at
*3 (S.D.N.Y. May 16, 2016) (Rakoff, J.) (“[T]he SEC was not required to identify in its complaint
the precise amount of disgorgement that is sought.”) Thus, the district court did not abuse its
discretion in imposing this penalty on Bronson.1
We have considered Bronson’s remaining arguments and find them to be without merit.
Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine O=Hagan Wolfe, Clerk of Court
1
Bronson also challenges the district court’s imposition of a lifetime bar from trading in penny
stocks. However, Bronson did not raise this argument before the district court, and we therefore
decline to address it. See, e.g., Mago Int’l v. LHB AG, 833 F.3d 270, 274 (2d Cir. 2016). In any
event, we discern no error, much less an abuse of discretion, in the district court’s imposition of
the bar under 15 U.S.C. § 77t(g)(1). See First Jersey Sec., Inc., 101 F.3d at 1477–78 (reviewing
permanent injunction for abuse of discretion).
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