Opinion
13-CV-1403 (VSB)
03-31-2017
SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. RANDALL KENT HANSEN, RAHFCO MANAGEMENT GROUP, LLC, VINCENT PUMA, and HUDSON CAPITAL PARTNERS CORPORATION, Defendants.
Appearances: Polly A. Atkinson Kimberly L. Frederick Securities and Exchange Commission Denver, Colorado Counsel for Plaintiff Securities and Exchange Commission Scott J. Splittgerber Michael F. Bachner Bachner & Associates New York, New York Counsel for Defendant Vincent Puma
MEMORANDUM & OPINION Appearances: Polly A. Atkinson
Kimberly L. Frederick
Securities and Exchange Commission
Denver, Colorado
Counsel for Plaintiff Securities and Exchange Commission Scott J. Splittgerber
Michael F. Bachner
Bachner & Associates
New York, New York
Counsel for Defendant Vincent Puma VERNON S. BRODERICK, United States District Judge:
The Securities and Exchange Commission (the "Commission" or the "SEC") brought this action against Defendants Kent Hansen, RAHFCO Management Group, LLC ("RAHFCO"), Vincent Puma, and Hudson Capital Partners Corp. ("HCP") for securities fraud and other securities laws violations in connection with RAHFCO and certain related investment funds. Before me is the Commission's motion for entry of final judgment against Defendant Puma. (Doc. 81.)
Default judgment orders have been entered against Defendants HCP and RAHFCO. (Docs. 100, 104.) The Commission moved for summary judgment on all its claims against Defendant Hansen, (Doc. 79), which I am granting in a Memorandum and Order issued concurrently with this Order.
I. Background
Puma consented to entry of an Order of Permanent Injunction and Other Relief ("PI Order"), which enjoined him from further violations of federal securities laws, and ordered him to pay disgorgement, prejudgment interest, and civil penalties to be determined by the Court. (Doc. 69.) The amount in disgorgement and penalties was to be determined through motion practice. The parties agreed to certain limitations in connection with this motion as part of the PI Order, including that "(a) Defendant will be precluded from arguing that he did not violate the federal securities laws as alleged in the Complaint; (b) Defendant may not challenge the validity of the Consent, this Order, or any Final Judgment; (c) solely for the purposes of such motion, the allegations of the Complaint shall be accepted as and deemed true by the Court; and (d) the Court may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of sworn deposition or investigative testimony, and documentary evidence, without regard to the standards for summary judgment contained in Rule 56(c) of the Federal Rules of Civil Procedure." (Id. at 4.)
Accordingly, I take as true the allegations in the complaint. From at least April 2007 through May 2011, Puma, the sole principal and 100 percent owner of HCP, and defendant Hansen, the president of RAHFCO, engaged in a scheme to defraud investors by convincing them to invest in the RAHFCO hedge funds, funds that purportedly traded in options and futures on the S&P 500 Index. (Compl. ¶ 2.) In truth, they did not follow the stated trading strategy, misrepresented their trading success, misused investor funds to make Ponzi payments to other investors, and used investor funds for their own purposes. (Id.) In furtherance of the scheme, they manipulated a reputable accounting firm into ostensibly verifying false account statements and other false documents that were provided to investors, made Ponzi payments to evade detection, and made numerous false and misleading statements. (Id.) Puma repeatedly provided false, inflated information regarding the value of the Funds and the Funds' trading performance information to Defendant Hansen or Defendant RAHFCO Management Group, LLC, and to an accounting firm, including false Forms 1099. (Id. ¶ 3.) They ultimately convinced approximately 100 individuals to invest over $23 million in the RAHFCO Hedge Funds. (Id. ¶ 2.)
"Compl." refers to the complaint filed on March 1, 2013 ("Complaint"). (Doc. 1.)
The Ponzi payments consisted of paying investors who made redemption requests not with earnings on investments, but largely or exclusively with funds invested by other customers. These payments were used to perpetuate the fraud.
In 2001 or 2002, Hansen began investing through a company run by Puma and another individual named Ward Onsa. (Id. ¶ 19.) In 2003, Puma and Onsa proposed that Hansen set up a "feeder fund" that would direct investors to Onsa and Puma. (Id. ¶ 20.) Hansen did so, and, between 2003 and 2007, the feeder fund had several names, including Capstone Investment Funds, LLC. (Id. ¶ 20.) Hansen closed Capstone in April 2007 and told investors to roll their investments into his newly created fund, Funds LP. (Id. ¶ 22.) Although Puma and Hansen created and distributed account statements to investors that falsely represented that approximately $13 million was transferred from Capstone to the Funds, only approximately $130,000 was deposited into the Funds' bank account from Capstone. (Id. ¶ 25.) Money invested in the Funds was periodically sent to Puma or HCP, ostensibly for trading using the designated trading strategy that was represented to investors. (Id. ¶ 32.)
According to the terms of the initial investments in the Funds, investors could redeem some or all of their investments with thirty days' notice. (Id. ¶ 33.) When such redemptions were requested, Hansen would contact Puma, who was to provide the funds for redemption. (Id. ¶ 33.)
Every month, Puma and HCP provided false earnings calculations for the Funds to an accounting firm, sometimes using Hansen or RAHFCO as an intermediary. (Id. ¶ 37.) The accounting firm was also provided account statements—based on false information provided by Puma and Hansen—that were then disseminated to investors. (Id.) From 2007 through May 2011, Puma and HCP falsely reported that the Funds earned over $9 million (an approximate 25% return) when in fact they had earned only $250,000 (a return of less than 2%). (Id. ¶ 38.) The accounting firm also used the false information provided by Puma and HCP to prepare Schedules K-1 for the Funds, which were sent to investors. (Id. ¶ 40.)
According to the Funds' Private Placement Memoranda ("PPM"), Puma was the manager and controlling member of the sub-adviser, HCP. (Id. ¶ 65.) HCP served as the Funds' primary portfolio management company, executing trades, advising the General Partner, and recommending investments to the Funds. (Id.) Based on information provided by Puma and HCP, Hansen and RAHFCO prepared quarterly account statements that reported falsely inflated returns on the investors' funds. (Id. ¶ 71.) These statements were mailed or emailed to every RAHFCO investor. (Id.) Puma and HCP knew and intended that the information they provided to Hansen and RAHFCO would be sent to investors. (Id.) Puma and HCP also knew that the false Schedules K-1 would be communicated to investors as well. (Id. ¶ 72.)
False statements about the success of the RAHFCO Funds were also posted on RAHFCO's website. (Id. ¶ 80.) Puma and HCP, directly or indirectly, sent Hansen the fictitious earnings of the RAHFCO Funds on a regular basis. (Id.) Every month Hansen and RAHFCO would post the fictitious earnings on the website, which was available to all investors and maintained a record of the purported monthly earnings from inception through the end of the scheme. (Id.)
By at least 2009, Puma and HCP failed to provide cash in response to calls for the Funds to pay redemptions requested by investors, even though the entire Fund was supposed to be in cash or cash equivalents at least once each month. (Id. ¶ 97.)
Puma controlled the purported RAHFCO trading and received copies of the brokerage statements. (Id. ¶ 108.) He knew that the $13 million allegedly held and rolled over to the Funds was fictitious. (Id. ¶ 109.) Puma knew that the purported trading strategy was not followed and that the purported returns disseminated to investors were fictitious. (Id. ¶¶ 110-11.) Puma also knew that he continuously represented that the Funds held more assets than ever existed in the Funds' bank and brokerage accounts, and that the earnings statements were not supported by the brokerage account statements. (Id. ¶¶ 112-13.) Puma knew that most of the invested funds were not invested in cash or cash equivalents in RAHFCO accounts and were at risk. (Id. ¶ 114.)
The scheme ultimately raised $23.5 million from approximately 100 investors between 2007 and 2011. (Id. ¶ 123.) But the trading strategy was not successful, resulting in only $280,000 in trading profits. (Id. ¶ 124.) The money raised was used in large part to pay investor withdrawals. (Id. ¶ 125.) Of the approximately 100 investors, about 40 remained in the RAHFCO Funds at the time of the collapse in May 2011. (Id. ¶ 126.) These investors lost about $10.2 million. (Id. ¶ 126.) The approximately 60 investors who had liquidated their accounts prior to the collapse had deposited about $10.6 million and, based on their false earnings, withdrew about $16.7 million, approximately $6.1 million more than they had deposited. (Id. ¶ 127.) Because the Funds had made only approximately $280,000 in gross trading profits, the new investor funds were the primary source of funds used to meet withdrawal requests. (Id. ¶ 128.)
Hansen and Puma paid at least $5.6 million in Ponzi payments to the liquidating investors. (Id. ¶ 129.) Hansen, his family, and his business withdrew approximately $760,000 more than they deposited in the Funds. (Id. ¶ 130.) RAHFCO received another $1.19 million in fees. (Id. ¶ 131.) The Funds paid Puma and HCP $1.65 million. (Id. ¶ 132.)
In connection with its motion, the SEC provided the Declaration of Kerry M. Matticks, who attested to Puma and HCP receiving $1,649,604 of investor money. (SOF Exh. 1 ¶ 3.) The SEC calculated prejudgment interest on $1,649,604 from June 1, 2011, using the IRS rate for underpayment, as $225,029. (Id. Exh. 2.) Disgorgement plus prejudgment interest totals to $1,874,633. (Id.)
"SOF" refers to Plaintiff's Statement of Material Facts in Support of its Motion for Judgment Against Vincent Puma. (Doc. 82.)
II. Injunction
Because Puma consented to entry of an order enjoining him from further violations of the securities laws, that injunction will be included in the entry of final judgment against him.
III. Disgorgement
The SEC requests disgorgement in the amount of $1,649,604, for which Puma would be jointly and severally liable with his company, HCP. Puma "do[es] not challenge the S.E.C.'s calculation as to the net of the funds sent to HCP." (Puma Br. 10 n.5.) Instead, he argues that the total amount sent to HCP and Puma should not be all attributable to Puma, but instead should be offset by any amount that was sent from HCP to Onsa for trading on behalf of the Funds.
"Puma Br." refers to Defendant Vincent Puma's Memorandum of Law in Opposition to the SEC's Motion for Disgorgement and Civil Penalties. (Doc. 115.)
A. Applicable Law
"Disgorgement of ill-gotten gains is a congressionally and judicially recognized remedy for a violation of securities law." S.E.C. v. Shehyn, No. 04 CV 2003(LAP), 2010 WL 3290977, at *7 (S.D.N.Y. Aug. 9, 2010). The primary purpose of disgorgement is to deter violations by depriving violators of their ill-gotten gains. See Official Comm. of Unsecured Creditors of WorldComm, Inc. v. SEC, 467 F.3d 73, 81 (2d Cir. 2006). In determining whether to order disgorgement and in what amount, courts have "broad discretion." See SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474-75 (2d Cir. 1996). In calculating the disgorgement amount, "a court must focus on the extent to which a defendant has profited" from the misconduct. SEC v. Univ. Express, Inc., 646 F. Supp. 2d 552, 563 (S.D.N.Y. 2009) (citing First Jersey, 101 F.3d at 1474). The disgorgement amount "need only be a reasonable approximation of profits causally connected to the violation." First Jersey, 101 F.3d at 1475. As long as the measure of disgorgement is reasonable, any uncertainty in calculating the amount profited in ill-gotten gains should be resolved in favor of the Commission. See SEC v. Contorinis, 743 F.3d 296, 304-05 (2d Cir. 2014); see also Univ. Express, 646 F. Supp. 2d at 563 ("Where this assessment cannot be made with precision, the 'risk of uncertainty should fall on the wrongdoer whose illegal conduct created that uncertainty.'" (citation and alteration omitted)). "Once the SEC has met the burden of establishing a reasonable approximation of the profits causally related to the fraud, the burden shifts to the defendant to show that his gains 'were unaffected by his offenses.'" SEC v. Razmilovic, 738 F.3d 14, 31 (2d Cir. 2013) (quoting SEC v. Lorin, 76 F.3d 458, 462 (2d Cir. 1996)).
It is also within the district court's discretion whether to award "prejudgment interest on the disgorgement amount for the period during which a defendant had the use of his illegal profits." Id. at 36. Awarding prejudgment interest is intended to deprive the wrongdoer of the benefit of retaining the illicit gains over time by "reasonably approximating the cost of borrowing such gain from the government." Contoninis, 743 F.3d at 308 (citing First Jersey, 101 F.3d at 1476). "The decision to award prejudgment interest is governed by the equities, reflecting 'considerations of fairness' rather than 'a rigid theory of compensation' . . . ." Id. at 308. The Second Circuit has previously approved the use of the IRS underpayment rate to calculate prejudgment interest on disgorgement as within a district court's discretion, First Jersey, 101 F.3d at 1476-77, and other courts in this District regularly approve the IRS underpayment rate, see, e.g., SEC v. Credit Bancorp, Ltd., No. 99 Civ. 11395(RWS), 2011 WL 666158, at *3 (S.D.N.Y. Feb. 14, 2011) (collecting cases).
B. Application
1. Disgorgement Amount
Puma argues that the amount paid to Puma and HCP should be offset by the amount directed by HCP to Onsa during the course of the scheme for trading purposes. The Complaint alleges that investors' money was periodically sent to Puma or HCP "ostensibly for trading using the designated trading strategy that was represented to investors," and that Onsa was "the trader for RAHFCO Hedge Funds." (Compl. ¶¶ 32, 66, 106.)
Puma also points to sections of the Complaint that state that "Hansen invested through a company run by Onsa and Puma" for which Puma and Onsa "purportedly used puts and calls to hedge investments in the S&P 500." (Compl. ¶ 19.) But these allegations are in reference to investments made in 2001 or 2002, prior to the creation of the RAHFCO Funds at issue. (See id. ¶¶19-20.) Whatever company Puma and Onsa shared is not the same as HCP. Puma was the sole principal of HCP. (Id. ¶ 16.)
First, I note that, while the Complaint is not exactly the paragon of clarity, it alleges that "[t]he funds . . . paid Puma and HCP $1.65 million" in the section describing the Defendants' profits in the wake of the RAHFCO Funds' collapse, (id. ¶ 132 (emphasis added); see also SOF Exh. 1 ¶ 3), which suggests that the $1.65 million represents profits realized by Puma/HCP, and does not include money that had previously been "[p]eriodically . . . sent" by Hansen through HCP for trading, (Compl. ¶ 32). Nevertheless, assuming that Puma or HCP did in fact transfer some of that money to Onsa for trading purposes, that does not disqualify such amounts from profits actually realized by and attributable to Puma. Whatever trading was ostensibly done on behalf of investors and the Funds was built entirely on the fraudulent scheme that used false information to entice investments in the first instance, promulgated misinformation regarding trading successes, and used profits to make Ponzi payments. Investors were misled about the trading strategy and given false account statements with falsely inflated returns. They were not told that Onsa had been sued between 2004 and 2007 by various investors for securities fraud, had been criminally indicted in November 2010 for securities fraud, or that millions of dollars in judgments had been entered against him. (Id. ¶¶ 66, 67.) It is clear from the allegations in the Complaint that Hansen, Puma, and Onsa were co-conspirators. Thus, under the circumstances, whatever money that passed through HCP to Onsa for trading purposes was fraudulently received in the first instance. See SEC v. Haligiannis, 470 F. Supp. 2d 373, 384 (S.D.N.Y. 2007) (counting investor contributions (minus distributions) made after securities fraud began as "ill-gotten gains as a result of the fraud"); SEC v. Opulentica, LLC, 479 F. Supp. 2d 319, 330 (S.D.N.Y. 2007) (counting as "unlawful gains appropriate for disgorgement" the sum that was "unlawfully obtained through the fraudulent scheme," minus returns, notwithstanding transfer of some solicited funds for trading purposes). Such transfers should instead be characterized as Puma and his co-conspirators' own investments of their ill-gotten gains, which are properly subject to disgorgement. See Univ. Express, 646 F. Supp. 2d at 564 ("[I]t is irrelevant for disgorgement purposes, how the defendant chose to dispose of the ill-gotten gains; subsequent investment of these funds, payments to charities, and/or payment to co-conspirators are not deductible from the gross profits subject to disgorgement." (quoting SEC v. Rosenfeld, No. 97CIV.1467, 2001 WL 118612, at *2 (S.D.N.Y. Jan. 9, 2001)), aff'd 438 F. App'x 23 (2d Cir. 2011); see also SEC v. Bocchino, No. 98CIV7525, 2002 WL 31528472, at *2 (S.D.N.Y. Nov. 8, 2002).
Puma cites to sections of the testimony given at Hansen's criminal trial where a co-conspirator testified that the RAHFCO money would "go to Hudson," which would "give it to Ward Onsa for trading." (Splittgerber Decl. (Doc. 116) Exh. C at 852-53.)
I note that the SEC does not state one way or another whether this amount was offset in any way by redemptions paid back to investors, but, because Puma does not contest this point, I will assume that no distributions were made from the HCP account at issue.
Therefore, I find that the $1,649,904 paid by the Funds to Puma and HCP, notwithstanding any portion given to Onsa for trading, is a "reasonable approximation" of Puma and HCP's profits. See First Jersey, 101 F.3d at 1474-75.
2. Prejudgment Interest
Puma has agreed to pay prejudgment interest from June 1, 2011. (Doc. 69.) The SEC has calculated prejudgment interest on the $1,649,604 from June 1, 2011 using the IRS rate for underpayment to be $225,029, resulting in a total disgorgement amount of $1,874,633. Puma's only objection to the amount of prejudgment interest is that it was calculated using the disgorgement amount that, he argues, ought to be offset by the amount allegedly transferred to Onsa for trading purposes. He does not object to the SEC's calculations. Because I conclude that the disgorgement amount proposed by the SEC is reasonable, the amount of prejudgment interest is appropriate for the same reasons.
IV. Civil Penalties
A. Applicable Law
The Securities Act and Exchange Act authorize three tiers of monetary penalties for statutory violations. See 15 U.S.C. §§ 77t(d), 78u(d)(3). The SEC seeks a third tier penalty, which, under each statute, may be imposed when the violation "involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement" and the "violation directly or indirectly resulted in substantial losses or created a significant risk of substantial losses of other persons." 15 U.S.C. §§ 77t(d)(2)(C); 15 U.S.C. §§ 78u(d)(3)(B)(iii). The penalty shall not exceed the greater of either the defendant's "gross amount of pecuniary gain" or $100,000. 15 U.S.C. § 77t(d)(2); 15 U.S.C. § 78u(d)(3)(B). The penalties are "intended to punish," not to provide injured parties with "recompense." Gabelli v. SEC, 133 S. Ct. 1216, 1223 (2013).
An action for civil penalties under § 2462 must be brought within five years "from the date when the claim first accrued." 28 U.S.C. § 2462; see Gabelli, 133 S. Ct. at 1220-21. Thus, the "gross amount of pecuniary gain" is "limited to gains within the five-year statute of limitations." SEC v. Cole, No. 12-cv-8167 (RJS), 2014 WL 4723306, at *5 (S.D.N.Y. Sept. 22, 2014) (citing Gabelli, 133 S. Ct. at 1220-21); see also SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279, 287 (2d Cir. 2013) ("[A]ny profit earned . . . earlier than five years before the SEC instituted its suit against the defendants may not be included as part of the civil penalty.").
Aside from the statutory maximum penalties, the actual amount of the penalty is within the district court's discretion. Razmilovic, 738 F.3d at 38. In making that determination, courts weigh the following factors: "(1) the egregiousness of the defendant's conduct; (2) the degree of the defendant's scienter; (3) whether the defendant's conduct created substantial losses or the risk of substantial losses to other persons; (4) whether the defendant's conduct was isolated or recurrent; and (5) whether the penalty should be reduced due to the defendant's demonstrated current and future financial condition." SEC v. Rajaratnam, 822 F. Supp. 2d 432, 433 (S.D.N.Y. 2011) (quoting Haligiannis, 470 F. Supp. 2d at 386).
B. Application
Puma appears to agree that the statutory requirements for a third tier penalty have been met. Indeed, the Complaint makes clear that Puma was directly involved in making multiple misrepresentations to investors, and employing fraud and deceit, which resulted in substantial losses to investors. Instead, Puma argues that: (1) the SEC's calculation fails to account for the statute of limitations, (2) civil penalties cannot be assessed against amounts subject to joint and several liability, and (3) his current family and financial circumstances should be considered.
In his brief, Puma says that "[t]he allegations in the Complaint, accepted as true for purposes of this motion only, likely suffice to meet the threshold for eligibility for a third-tier penalty. However, for the reasons state below, we contest, among other things, the S.E.C.'s methodology for its specific request and the necessity of a third-tier penalty in this case." (Puma Br. 17 n.11.)
I agree with Puma that the SEC's calculations fail to credit repayments made within the statute of limitations period against his profits during that same period. The SEC provided the following chart showing the payments between HCP and two RAHFCO accounts (WF 2208 and WF 2985):
| Date | Descriptio | Name | Deposits | Withdrawal | Bate | Bate 2 | Account |
| 3/27/2007 | wire | Hudson Capital Partners | $ 240,000.00 | 371 | WF 2208 | ||
| 4/2/2007 | wire | Hudson Capital Partners | $ 117,500.00 | 371 | WF 2208 | ||
| 5/11/2007 | wire | Hudson Capital Partners | $ 250,000.00 | 374 | WF 2208 | ||
| 5/30/2007 | wire | Hudson Capital Partners | $ 348,000.00 | 377 | WF 2208 | ||
| 8/28/2007 | wire | Hudson Capital Partners | $ 50,000.00 | 386 | WF 2208 | ||
| 9/10/2007 | wire | Hudson Capital Partners | $ 300,000.00 | 387 | WF 2208 | ||
| 12/6/2007 | wire | Hudson Capital Partners | $ 865,000.00 | 395 | WF 2208 | ||
| 12/28/2007 | wire | Hudson Capital Partners | $ 200,000.00 | 397 | WF 2208 | ||
| 1/29/2008 | wire | Hudson Capital Partners | $ 295,000.00 | 402 | WF 2208 | ||
| 3/6/2008 | wire | Hudson Capital Partners | $ 600,000.00 | 404 | WF 2208 | ||
| 3/25/2008 | wire | Hudson Capital Partners | $ 150,000.00 | 404 | WF 2208 | ||
| 4/28/2008 | wire | Hudson Capital Partners | $ 120,000.00 | 410 | WF 2208 | ||
| 5/19/2008 | transfer | Hudson Capital Partners | $ 30,000.00 | 410 | WF 2208 | ||
| 6/30/2008 | wire | Hudson Capital Partners | $ 100,000.00 | 414 | WF 2208 | ||
| 12/3/2008 | wire | Hudson Capital Partners | $ 70,000.00 | 427 | WF 2208 | ||
| 12/22/2008 | wire | Hudson Capital Partners | $ 50,000.00 | 427 | WF 2208 | ||
| 12/24/2008 | wire | Hudson Capital Partners | $ 300,000.00 | 430 | WF 2208 | ||
| 12/29/2008 | wire | Hudson Capital Partners | $ 250,000.00 | 430 | WF 2208 | ||
| 2/27/2009 | wire | Hudson Capital Partners | $ 600,000.00 | 437 | WF 2208 | ||
| 3/3/2009 | wire | Hudson Capital Partners | $ 4,896.00 | 437 | WF 2208 | ||
| 3/4/2009 | wire | Hudson Capital Partners | $ 95,000.00 | 437 | WF 2208 | ||
| 8/28/2009 | transfer | Hudson Capital Partners | $ 17,000.00 | 452 | WF 2208 | ||
| 1/29/2010 | transfer | Hudson Capital Partners | $ 32,000.00 | 464 | WF 2208 | ||
| 7/15/2010 | wire | Hudson Capital Partners | $ 245,000.00 | 475 | WF 2208 | ||
| 8/30/2010 | wire | Hudson Capital Partners | $ 200,000.00 | 479 | WF 2208 | ||
| 9/13/2010 | wire | Hudson Capital Partners | $ 100,000.00 | 479 | WF 2208 | ||
| 9/15/2010 | wire | Hudson Capital Partners | $ 100,000.00 | 479 | WF 2208 | ||
| Total - WF2208 | $ 2,514,896.00 | $ 3,214,500.00 | |||||
| Net | $ 699,604.00 | ||||||
| 4/28/2008 | WW | Hudson Capital Partners | $ 300,000.00 | 4165 | WF 2985 | ||
| 5/2/2008 | WW | Hudson Capital Partners | $ 160,000.00 | 4166 | WF 2985 | ||
| 5/30/2008 | WW | Hudson Capital Partners | $ 330,000.00 | 4169 | 4287 | WF 2985 | |
| 7/1/2008 | WW | Hudson Capital Partners | $ 115,000.00 | 4171 | 4291 | WF 2985 | |
| 7/7/2008 | WW | Hudson Capital Partners | $ 45,000.00 | 4171 | 4296 | WF 2985 | |
| Total - WF 2985 | $ 950,000.00 | ||||||
| Total to HCP | $ 1,649,604.00 |
As the Supreme Court recently explained, the most natural reading of § 2462 "sets a fixed date when exposure to the specified Government enforcement efforts ends, advancing 'the basic policies of all limitations provisions: repose, elimination of stale claims, and certainty about a plaintiff's opportunity for recovery and a defendant's potential liabilities.'" Gabelli, 133 S. Ct. at 1221 (quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)) (holding discovery rule inapplicable to § 2462 limitations period). As such, I do not include gains accrued outside of the limitations period as part of Puma/HCP's "gross pecuniary gains," and see no reason why I should consider those same profits for the limited purpose of discounting Puma/HCP's later repayments. Therefore, the repayments made within the limitations period should not be reduced by the pre-March 2008 gains. Properly calculated, the gross pecuniary gains include all amounts received within the limitations period, subtracted by the amounts returned within the limitations period. See SEC v. GTF Enters., Inc., No. 10-CV-4258 (RA), 2015 WL 728159, at *5 n.4 (S.D.N.Y. Feb. 19, 2015) (calculating gross pecuniary gains "by adding all of the investments made within the statute of limitations period and subtracting the money returned . . . within that same period" (emphasis added)). As such, Puma and HCP's pecuniary gains within the limitations period amount to a negative balance, resulting in a statutory maximum penalty of $100,000. See 15 U.S.C. § 77t(d)(2); 15 U.S.C. § 78u(d)(3)(B).
While Puma is right to point out that civil penalties can only be imposed against individual defendants, see S.E.C. v. Pentagon Capital Mgmt. PLC, 725 F.3d 279, 287-88 (2d Cir. 2013) (vacating joint and several liability as between individual defendant and his mutual fund and its special purpose fund); 15 U.S.C. § 77t(d)(2); 15 U.S.C. § 78u(d)(3)(B), the SEC seeks to impose the penalty on Puma alone, not jointly and severally. To the extent the amount calculated is based on a disgorgement amount based on joint and several liability, the argument is moot, as the $100,000 statutory maximum penalty applies, and I decline to impose a civil penalty in any event. --------
In considering the proper amount, I recognize the egregiousness of Puma's conduct over the course of several years, including the propagation of numerous false statements intended to defraud investors, which led to substantial investor losses. I also consider the extent to which other relief and judgments ordered in this matter will have the desired punitive effect. See Universal Exp., 646 F. Supp. 2d at 568-69. Puma will be required to pay $1,874,633 in disgorgement and prejudgment interest, which is bound to have a retributive effect and deter future violations. HCP is defunct, and Hansen has agreed to an injunction against him, preventing him from further violations of securities laws. I also recognize that Puma has a wife and four children, and he claims his family's current net worth is approximately negative $1,114,433.80. (Doc. 116-1.) Under the circumstances, the disgorgement amount is sufficiently punitive, and I decline to impose additional penalties.
V. Conclusion
For the foregoing reasons, Plaintiff's motion is granted in part and denied in part. Judgment shall be entered against Puma in the amount of $1,874,633, for which he will be held jointly and severally liable with Hudson Capital Partners Corporation. I will also enter the consent judgment enjoining Puma from future securities laws violations. The Clerk's Office is respectfully directed to close the open motions at Documents 81 and 119.
SO ORDERED. Dated: March 31, 2017
New York, New York
/s/_________
Vernon S. Broderick
United States District Judge