Securities and Exchange Commission v. Lee Farkas

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1757
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff – Appellee,
v.
LEE BENTLEY FARKAS,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Leonie M. Brinkema,
District Judge. (1:10-cv-00667-LMB-TRJ)
Submitted: January 31, 2014 Decided: February 11, 2014
Before MOTZ, DAVIS, and WYNN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Lee Bentley Farkas, Appellant Pro Se. Catherine Anne Broderick,
David Lisitza, UNITED STATES SECURITIES & EXCHANGE COMMISSION,
Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Lee Bentley Farkas was convicted in 2011 of one count
of conspiracy to commit bank, wire, and securities fraud; six
counts of bank fraud; four counts of wire fraud; and three
counts of securities fraud. Concomitant to his criminal
prosecution, the Securities and Exchange Commission (“SEC”)
filed a civil enforcement action alleging that Farkas violated
the Securities Act of 1933, see 15 U.S.C. § 77q(a) (2012), the
Securities Exchange Act of 1934, see 15 U.S.C. §§ 78j(b),
78m(b)(2), (b)(5) (2012), and the Exchange Act Rules, see 17
C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-
13, 240.13b2-1 (2013). The SEC sought, among other relief, a
permanent injunction barring Farkas from committing future
violations of the securities laws and an order prohibiting him
from acting as officer or director of a company that had
registered securities or was required to make financial reports
to the SEC, or from serving in a senior management or control
position at any mortgage-related company or financial
institution or holding a position involving financial reporting
at a public company.
The court stayed the civil action pending the
resolution of Farkas’ criminal case. Following Farkas’
unsuccessful direct appeal of his conviction and sentence, see
United States v. Farkas, 474 F. App’x 349 (4th Cir. 2012)
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(unpublished), the SEC moved for summary judgment in the civil
action, arguing that, under the doctrine of collateral estoppel,
Farkas’ conviction conclusively established his violation of the
securities laws and provided undisputed facts sufficient to
support the imposition of the requested injunctive relief.
Following a response from Farkas, in which he raised certain
challenges to the application of collateral estoppel, the court
concluded that collateral estoppel was appropriate, granted
summary judgment as to all claims, and imposed all requested
injunctive relief. Farkas appeals this order.
I.
Farkas first raises two challenges to the district
court’s collateral estoppel analysis. To apply collateral
estoppel, a party must show that
(1) the issue or fact is identical to the one
previously litigated; (2) the issue or fact was
actually resolved in the prior proceeding; (3) the
issue or fact was critical and necessary to the
judgment in the prior proceeding; (4) the judgment in
the prior proceeding is final and valid; and (5) the
party to be foreclosed by the prior resolution of the
issue or fact had a full and fair opportunity to
litigate the issue or fact in the prior proceeding.
In re Microsoft Corp. Antitrust Litig., 355 F.3d 322, 326 (4th
Cir. 2004). We review the district court’s application of
collateral estoppel de novo, United States v. Fiel, 35 F.3d 997,
1005 (4th Cir. 1994), but we review all factual findings made in
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connection with that ruling for clear error, Sedlack v. Braswell
Servs. Grp., Inc., 134 F.3d 219, 223 (4th Cir. 1998). We
confine our review on appeal to the narrow issues Farkas raises
in his informal brief. See 4th Cir. R. 34(b) (limiting
appellate review to issues raised in informal brief).
Farkas first asserts that the jury was improperly
instructed on the definition of a “security” during his criminal
trial and therefore that the district court in this case erred
in relying on the jury’s finding that Farkas committed fraud in
connection with “securities.” Because Farkas challenges this
jury instruction for the first time on appeal, and the district
court had no opportunity to pass on the merits of this issue, we
review it for plain error. See United States v. Lynn, 592 F.3d
572, 577 (4th Cir. 2010).
The district court did not plainly err in concluding
that collateral estoppel barred relitigation of whether Farkas
committed fraud in connection with “securities.” This question
was actually and necessarily resolved in Farkas’ criminal trial.
At the close of the trial, the jury was instructed that, to
convict Farkas of securities fraud, it was required to find
beyond a reasonable doubt that Farkas committed the alleged
fraud in connection with securities of Colonial BancGroup.
Additionally, Farkas’ indictment alleged that Farkas and his co-
conspirators made repeated fraudulent misrepresentations with
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regard to mortgage pools in which Colonial Bank purchased a
participation interest pending resale to third-party investors.
These allegations similarly implicated the sale of securities.
See Zolfaghari v. Sheikholeslami, 943 F.2d 451, 455 (4th Cir.
1991) (recognizing that “securities” include “participation
interests in a managed pool of mortgage notes”). Thus, the
question whether the fraud involved “securities” was clearly
litigated, and the jury could not have convicted Farkas of
securities fraud or conspiracy to commit securities fraud absent
such a finding.
Farkas’ argument that he lacked ample opportunity or
incentive to challenge this essential element during his
criminal proceedings is unavailing. Farkas provides no reason
to suggest that he lacked an incentive to challenge the jury
instruction defining “security” during his criminal trial.
Instead, he simply argues that the jury instruction was wrong.
Given that he could have, but did not, raise this objection at
trial, “[i]t is just this type of argument . . . that collateral
estoppel bars [him] from making.” Pignons S.A. de Mecanique v.
Polaroid Corp., 701 F.2d 1, 2 (1st Cir. 1983) (a plaintiff
cannot rely on “new theories, evidence, and arguments” to
overcome collateral estoppel where plaintiff “had a fair
opportunity to make these arguments and to introduce this
evidence the first time”). See also Astoria Fed. Sav. & Loan
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Ass’n v. Solimino, 501 U.S. 104, 107 (1991). (“[A] losing
litigant deserves no rematch after a defeat fairly suffered, in
adversarial proceedings, on an issue identical in substance to
the one he subsequently seeks to raise.”); Liberty Mut. Ins. Co.
v. FAG Bearings Corp., 335 F.3d 752, 763 (8th Cir. 2003)
(“[M]ost courts require more to avoid issue preclusion than
simply an assertion that the previous decision was wrong.”).
Farkas’ second argument regarding collateral estoppel
fares no better. He contends that he did not have a full and
fair opportunity to litigate the materiality of the
misstatements and omissions underlying his fraud convictions
because the court in his criminal prosecution limited his
counsel’s ability to question two witnesses as to the precise
monetary amount of the fraud. We have already rejected Farkas’
challenge to the court’s evidentiary ruling regarding one of
these witnesses, who Farkas sought to cross-examine to show that
his salary and costs “reduced the amount of TBW assets available
to pay its creditors.” Farkas, 474 F. App’x at 357. As the
district court concluded, this inquiry was irrelevant to the
materiality of Farkas’ misstatements and omissions. Id. And
the record clearly belies Farkas’ assertion that his counsel was
prevented from questioning the second witness as to the amount
of collateral available to Colonial Bank. Thus, Farkas fails to
establish error in the application of collateral estoppel.
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II.
Farkas finally asserts that the district court
committed reversible error by failing to explain the findings
supporting its imposition of injunctive relief, precluding
meaningful appellate review of that issue. The SEC asserts that
the record is so clear as to make remand unnecessary. We agree
with the SEC.
In moving for summary judgment, the SEC again relied
on facts addressed in Farkas’ criminal prosecution to support
its request for summary judgment as to the injunctive relief.
Farkas does not assert that injunctive relief is improper in his
case, and, importantly, he did not raise such an argument in
opposing the SEC’s motion for summary judgment in the district
court. Where a party “fails to properly support an assertion of
fact or fails to properly address another party’s assertion of
fact” in responding to a summary judgment motion, the court is
permitted to “consider the fact undisputed for purposes of the
motion,” and to “grant summary judgment if the motion and
supporting materials -- including the facts considered
undisputed -- show that the movant is entitled to it.” Fed. R.
Civ. P. 56(e)(2)-(3). Because Farkas did not challenge the
facts identified by the SEC in support of injunctive relief, the
court was entitled to treat them as undisputed in considering
the motion.
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We find that those facts, as well as our prior
findings in Farkas’ direct appeal, see Farkas, 474 F. App’x at
351-52, amply support the court’s decision to impose the
requested relief. See, e.g., SEC v. Bankosky, 716 F.3d 45, 48
(2d Cir. 2013) (listing factors to consider in analyzing
“unfitness” to serve as officer or director, as required to
impose officer and director bar); SEC v. Pros Int’l, Inc., 994
F.2d 767, 769 (10th Cir. 1993) (addressing factors to consider
in evaluating likelihood of repetition of securities fraud, as
required for injunction); SEC v. Bonastia, 614 F.2d 908, 912 (3d
Cir. 1980) (listing factors to consider in imposing permanent
injunction); see also 15 U.S.C. § 78u(d)(5) (2012) (authorizing
district court, in action under securities laws, to impose “any
equitable relief that may be appropriate or necessary for the
benefit of investors”).
III.
Farkas also requests that we place his appeal in
abeyance pending the resolution of his ongoing 28 U.S.C. § 2255
(2012) proceeding. We find such relief unwarranted in this
case, given the indisputable finality of his criminal judgment
and the extended delay that would likely result from such a
stay. Should Farkas prove successful in vacating his
convictions under § 2255, he may seek relief from the civil
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judgment in the district court pursuant to Rule 60(b) of the
Federal Rules of Civil Procedure.
Accordingly, we deny Farkas’ motion for abeyance and
affirm the district court’s judgment. We dispense with oral
argument because the facts and legal contentions are adequately
presented in the materials before this court and argument would
not aid in the decisional process.
AFFIRMED
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