Securities and Exchange Commission v. Zouvas et al

REPLY to Response to Motion re: 145 MOTION for Partial Summary Judgment as to Defendant Cameron F. Robb

D. Ariz.February 22, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Patrick R. Costello Ann H. Petalas Securities and Exchange Commission 100 F Street N.E. Washington, DC 20549-5985 Email: costellop@sec.gov petalasa@sec.gov Florida Bar No. 75034 (Costello) Texas Bar No. 24012852 (Petalas) Telephone: (202) 551-3982 Facsimile: (202) 772-9245 Attorneys for Plaintiff IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Securities and Exchange Commission, Plaintiff, vs. Luke C. Zouvas, et al., Defendants. No. CV-17-00427-PHX-SPL PLAINTIFF’S REPLY MEMORANDUM IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO DEFENDANT CAMERON F. ROBB Oral Argument Requested Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 1 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - i - TABLE OF CONTENTS I. INTRODUCTION………………………………………………………….…… 1 II. ARGUMENT………………………………………………….………………... 1 A. Robb Has Failed to Proffer Any Evidence to Show a Genuine Dispute that He Acted Negligently……...…...………….….…………… 1 1. Robb was Intimately Involved in the Division of Crown Shares …………………………………………….…… 2 2. Robb was Well Aware of Aninye’s Need for Capital……………. 4 3. Robb was Responsible for Crown’s Press Releases...…………… 7 B. Robb Has Failed to Meet the Advice of Counsel Defense..…...………… 10 III. CONCLUSION…………………………………...…………………….………. 11 Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 2 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - ii - TABLE OF AUTHORITIES Cases Page B2B CFO Partners LLC v. Kaufman 856 F. Supp. 2d 1084 (D. Ariz. 2012)…………………………………. FTC v. Publ’g Clearing House, Inc. 104 F.3d 1168 (9th Cir. 1997)…………………………………………. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. 475 U.S. 574 (1986)…………………………………………………… SEC v. Apartments Am. LLC, No. 12-0754 2014 U.S. Dist. LEXIS 27633 (C.D. Cal. Mar. 3, 2014)……………… SEC v. CMKM Diamonds, Inc., No. 08-0437 2011 U.S. Dist. LEXIS 80987 (D. Nev. July 25, 2011)……………….. SEC v. Goldfield Deep Mines Co. 758 F.2d 459 (9th Cir. 1985)…………………………………………... SEC. v. Hughes Cap. Corp. 124 F.3d 449 (3d Cir. 1997)…………………………………………… SEC v. Janus Spectrum LLC, No. 15-609 2017 U.S. Dist. LEXIS 126231 (D. Ariz. Aug. 8, 2017)……………… SEC v. Milanowski, No. 08-0511 2010 U.S. Dist. LEXIS 44770 (D. Nev. Mar. 15, 2010)………………. 8, 9 3 1 11 10 10, 11 1, 7, 9 1 11 Statutes and Rules Page Securities Act Section 17(a)(3) 15 U.S.C. § 77q(a)(3)……………………………..…………………… Fed. R. Civ. P. 56(c)(2)……………………………………………………….. D. Ariz. LRCiv 7.2(d)………………..………………………………………... D. Ariz. LRCiv 7.2(m)(2)……………………………………………………... 1, 10 5, 9 1 5, 9 Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 3 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 1 - Plaintiff Securities and Exchange Commission (“SEC”) files this reply memorandum pursuant to LRCiv 7.2(d) in further support of its Motion for Partial Summary Judgment (Doc. 145) (the “SEC’s Motion”). The SEC responds to the arguments raised by Defendant Cameron F. Robb (“Robb”) in his opposition to the SEC’s Motion (Doc. 177) (the “Opposition”) and in his Controverting Statement of Facts (Doc. 178) (“CSOF”).1 I. INTRODUCTION As the party opposing summary judgment, Robb was required to come forward with “specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis in original). As described in more detail below, Robb has failed to identify a single genuine dispute to show he did not act negligently in this case surrounding his involvement with Crown Dynamics Corp. (“Crown”). Instead, he has submitted self-serving evidence that contradicts his sworn deposition testimony, and in many instances, has cited to parts of the record that actually support the SEC’s position. In addition, he has not met the required elements to prevail on his advice of counsel defense. Accordingly, the SEC’s Motion should be granted. II. ARGUMENT A. Robb Has Failed to Proffer Any Evidence to Show a Genuine Dispute that He Acted Negligently The SEC’s Motion on summary judgment is based on Section 17(a)(3) of the Securities Act. To prevail, the SEC has to show that Robb negligently engaged in fraudulent or deceitful transactions, practices or courses of business with respect to Crown. Negligence in this context is measured by reasonable prudence, which looks objectively at Robb’s actions in light of what a reasonable person would do under like circumstances. See SEC v. Hughes Cap. Corp., 124 F.3d 449, 454 (3d Cir. 1997); SEC v. Janus Spectrum LLC, No. 15-609, 2017 U.S. Dist. LEXIS 126231, at *24 (D. Ariz. Aug. 8, 2017). 1 The only remaining matter on summary judgment in this case is the SEC’s reply to the opposition brief that Defendant Luke C. Zouvas filed on February 8, 2019 (Doc. 179). By Order of the Court, that reply is due by March 7, 2019. See Doc. 176. Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 4 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 2 - 1. Robb was Intimately Involved in the Division of Crown Shares Despite his conclusory denial to the contrary, the undisputed evidence in this case shows clearly that Robb was involved from the outset on how the Crown shares were divided. In an email to Steven Aninye dated February 2, 2012, Robb stated explicitly that he and Larson had “agreed” with Aninye that all 7.5 million of Crown’s free-trading shares were to go to Robb’s and Larson’s “shareholders” in exchange for, among other things, “3 months of marketing to [Crown] to bring in new investors and provide the stock with a true market.” See Doc. 149-5, at 1.2 In that same email, he refers to the shareholders as his “investor group.” Id. at 2. When Aninye noticed Crown shares were trading publicly, and questioned Robb about why no capital was actually coming into the company, Robb replied that the proceeds earned through public trading were his and Larson’s “side” of the deal, not Aninye’s. See Doc. 160, at ¶ 11. In fact, Crown never received any of the proceeds being earned by the investor group. Id. Aninye justifiably felt like he had been taken advantage of – Larson and Robb had used him and his PomCom tracking technology (“PomCom”) to create value in the market. Id. Two members of Robb’s investor group were Turks and Caicos-based companies Netlynx Solutions Ltd. (“Netlynx”) and Opal Management, Inc. (“Opal”). See Doc. 146, at ¶ 45. Robb admits on summary judgment he was aware Netlynx and Opal acquired the shares and also admits the companies were owned by a good friend of his. See CSOF No. 51. Despite claiming in his Declaration (Doc. 178-3, at ¶ 2) that Netlynx, Opal and the other investors in the group “acted independently” of him and Larson, Robb simultaneously admits that not only did he facilitate getting Netlynx’s share certificate transferred, but he also signed an irrevocable stock power on the company’s behalf to move the process forward. See CSOF No. 51. Robb has not introduced any evidence, other than 2 In light of his claimed agreement to provide “3 months of marketing” to Crown, Robb is hard-pressed to say in CSOF No. 91 that he “did not focus on promoting the company.” And coincidentally, the “3 months of marketing” was the precise length of time the Ritman Campaign lasted. Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 5 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 3 - his own self-serving testimony, to dispute these actions, which, at a minimum, show that Netlynx and the other investors were not in fact independent after all. See FTC v. Publ’g Clearing House, Inc., 104 F.3d 1168,1171 (9th Cir. 1997) (“A conclusory, self-serving affidavit, lacking detailed facts and any supporting evidence, is insufficient to create a genuine issue of material fact.”) In addition, despite the investor group’s ultimate acquisition of the shares, Robb has offered no evidence to show the Israeli subscribers from whom the group acquired the shares actually received consideration for the transaction, or ever were bona fide investors in Crown to begin with. Simply pointing to the share purchase agreements with the subscribers’ names, as Robb has done throughout his CSOF, does not create a genuine dispute, considering that the subscribers themselves have testified emphatically that they were not legitimate investors. See Doc. 149-1, 149-2, 149-3. Robb, along with the other Defendants, chose not to depose the subscribers to challenge that testimony, which therefore stands uncontroverted. The evidence also belies Robb’s assertion that he played no role in directing Zouvas to allocate the shares to the investor group. First, Zouvas testified explicitly at his deposition (and also separately represented to the California Bar in their related investigation) that Robb directed him to transfer Crown shares to their investors: Q. So does that refresh your recollection as to whether Mr. Larson and Mr. Robb in fact gave you directions to transfer the shares? A. Yes. And, you know, when I say that, like, transfer, the information is what I was – you know, I would direct because I’m authorized. I would get the information from them. That’s what I mean when I say that. See Doc. 154-8, at 89:13-20. Zouvas told the California Bar that Crown shares were “transferred to investors of Chris Larson and Cameron Robb.” Id. at 89:7-9. He further described these individuals as investors Robb and Larson “were bringing into the company.” Id. at 86:13-19. And second, while Aninye may have signed off on the allocation as part of the “agreement” Rob claims he had with Aninye, the substance of the instruction to Zouvas Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 6 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 4 - always came from Larson and Robb because, according to Zouvas, Aninye would not even have known who these investors were. See id. at 86:13-19. This is consistent with Robb’s own testimony. At his deposition, Robb confirmed that he emailed Aninye a letter to sign that represented to a brokerage that Crown shares were transferred to Netlynx. See Doc. 154-5, at 209:20-23; 210:22-25; 211:1-11. Aninye responded that same day, and asked Robb who the brokerage was and what the transaction was all about. Id. at 214:23-25; 215:23-25. Unsurprisingly, Robb was unable to recall at his deposition if he ever actually explained the transaction to Aninye, but conveniently for Robb and for Netlynx, Aninye did as instructed and signed the letter. Id. at 216:12-16; 213:10-14. In short, Robb was intimately involved in the allocation of all of Crown’s free- trading shares to the investor group. While he may profess ignorance as to how these shares ultimately were sold into the market, he has admitted the shares and the market trading were his “side” of the deal. In that regard, he bears responsibility for negligently arranging those shares to be transferred to the investor group without any evidence, or even inquiry, that those shares were lawfully acquired in the course of a legitimate transaction from bona fide sellers. This ultimately paved the way for the scheme in this case to unfold, with Jorgenson, Schiprett and the other investors dumping the shares into the market. 2. Robb was Well Aware of Aninye’s Need for Capital Notwithstanding the picture Robb attempts to paint in his Opposition, the SEC has never contended that Aninye’s PomCom technology was not real or that some of the devices were not operational during the relevant time period. Instead, the problem in this case was, and always has been, that to sustain large scale manufacturing, distribution and support of the PomCom, Aninye needed capital. See Doc. 146, at ¶ 29. Despite his claim to the contrary, Robb was well aware from the very beginning of this need for capital. In fact, the excerpts from his own deposition testimony that he attaches to the CSOF make this point quite clearly: “Yes, [Aninye] told me that he required capital . . . he needed and required capital to run his business.” See Doc. 178-2, at 122:2- 16. Indeed, the Business Plan that Larson filed on summary judgment (that Robb also Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 7 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 5 - references in his Opposition) makes an explicit request for a minimum of $2 million in capital. See Doc. 154-6, Ex. A, at 14.3 And in several email communications with Aninye, Robb specifically addressed the question of capital. For example, on February 2, 2012, only a few weeks after the Crown merger took place, he told Aninye: “We never represented that we would be responsible for raising capital. We have bankers that you can go to and present your deal, but its [sic] up to you to raise the money.” Doc. 149-5, at 1. In another email the same day, Aninye was confused about how capital would be raised – he thought it was Robb’s and Larson’s “network” that would provide the funds.4 Doc. 152-1 at 1. Robb rejected Aninye’s position and responded that it was Aninye who would have to provide the capital himself or otherwise “engage someone who can.” A few weeks later, the confusion ultimately came to a head, with Robb again telling Aninye that he expected Aninye to have raised capital by that point in time. See Doc. 162-1, at 1. And it was then that Aninye finally had enough. Aninye constantly felt pressure from Larson and Robb into “telling all these stories to the market” that Aninye was not comfortable telling. See Doc. 161-4, at 183:3- 5. He also felt like Robb took advantage of him from the outset. As noted above, Robb was aware Crown needed capital in order to produce the PomCom on a large scale. Instead of assisting Aninye, however, he and Larson focused on their investor group’s stock sales in the market, and continually shoved stock transfer documents in front of Aninye to “sign these documents, sign this, sign that, sign this, sign that, and it was just getting too much. It was confusing.” Id. at 184:3-8. This frustrated Aninye because none of the stock sale proceeds ever came into Crown. Aninye responded to Robb’s February 16 email the same day and told Robb he was considering resigning. The two then spoke, and Robb pleaded with Aninye that he could not “pull out now.” See Doc. 161-4, at 184:17-21. But Aninye had been so 3 Robb assumes the Business Plan is properly before the Court. Pursuant to Fed. R. Civ. P. 56(c)(2) and LRCiv 7.2(m)(2), however, the SEC objects to the document because it is hearsay and does not qualify for an exception. 4 Little did Aninye know that Robb’s and Larson’s “network” was actually quite busy at the time dumping Crown’s free-trading shares into the market. Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 8 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 6 - discouraged with the way Larson and Robb handled things that he planned to issue his own press release telling the market he was leaving. As this was only two weeks into the Ritman Campaign, Robb become irate and hung the phone up on Aninye. Id. at 185:4-25. A few minutes later, however, he emailed Aninye wanting to “discuss” matters more, telling Aninye there were two options: they could continue on, or they could unwind the merger. See Doc. 162-1, at 1. Aninye then decided the merger should be unwound. From mid-February 2012 on, the parties were focused on unwinding the merger, with Robb taking charge of the process because he “didn’t want the market to see a sudden change.” Id. at 187:1-25. Aninye wanted just to resign and be done with it, but Larson and Robb again pleaded with him not to do that until the transition to Airware was complete, with Robb even saying “Do you know how much we’ve put into all this?” and “We’ve driven the stock price to where it is now, and if you just resign it will crash.” Id. at 188:10-14. Zouvas also urged Aninye not to resign at that point, telling him that they were “getting ready to file SEC documents.” Tellingly, one of the those filings was Crown’s 8-K/A dated March 20, 2012 (which was filed right in the middle of the Ritman Campaign) and which disclosed, among other things, relevant to the subject of capital, that distribution of the PomCom was “contingent” on raising capital, and that Crown suffered “competitive disadvantages” in that the technology had yet to be developed to the stage of “mass production.” See Doc. 161-3, at 4, 8. In sum, it is beyond question that Robb knew about the need for capital so that (i) Crown could get the PomCom to market; (ii) the company would have the resources in place to be able to monitor the technology; and (iii) the projections from the Business Plan could come to fruition. As a former experienced officer of public companies, Robb should have known it would take a new business like Crown some time to get off the ground. He also should have known the projections in the Business Plan were just that – projections. And he knew those projections were contingent on capital. And yet, he still went to great lengths to portray Crown as a seasoned operation that was ready to enter the market and start fulfilling large-scale customer demand. This is evident from the Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 9 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 7 - misleading press releases that he drafted, as noted below. A reasonable person in Robb’s circumstances would not have had it both ways – either Crown was meeting its needs as the press releases described, or it was an infant company in need of capital. Nevertheless, it is not hard to understand why Robb was adamant about overselling Crown. Given how invested he and Larson were in the success of the public stock sales by their investor group, it was to his advantage to make Crown seem as solid as possible for the three months the Ritman Campaign lasted. And it also provides the context for the temper tantrum he had when Aninye threatened to pull the plug on the whole operation just a few weeks into the Ritman Campaign. Indeed, the Court need look no further than to Robb’s own statement above on this issue: “We’ve driven the stock price to where it is now, and if you just resign it will crash.” Robb’s overzealousness is proof he was negligent at a minimum in fraudulently marketing Crown to the public. And he has not come forward with any competing evidence to suggest otherwise. See Hughes Cap., 124 F.3d at 453 (affirming summary judgment in favor of the SEC where defendant was negligent in misrepresenting company’s financial status in press releases). 3. Robb was Responsible for Crown’s Press Releases In light of his awareness of Crown’s dire need for capital, Robb’s attempt to refute summary judgment by walking back much of what he said at his deposition about his role in Crown’s press releases is unavailing. With respect to the press release dated January 31, 2012, the documentary evidence tells a different story than the one Robb is pushing forward in his Opposition. On January 30, 2012, at 9:41 p.m., Robb emailed a draft of the release to Larson and Aninye and asked for comments. See Doc. 152-3, at 2. Less than ten hours later, at 7:25 a.m., Aninye responded by telling Robb he had inaccurately portrayed the PomCom, and asked to delay the release by one day so that Aninye could revise it. Id. at 1-2. But by then, Robb had already published the release. Id. at 1. When asked at his deposition why he had done that without first confirming its accuracy with Aninye, Robb testified he could not recall Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 10 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 8 - whether this particular release was rushed because he had to go on vacation, or whether that happened at another time. See Doc. 154-5, at 166:19-24. This evidence is a far cry from what Robb now says in his Declaration that Aninye “authorized the content and the dissemination of” the press releases (see Doc. 178-3, at ¶ 5), and directly contradicts what Robb previously said at his deposition. Accordingly, the Court should strike the Declaration. See B2B CFO Partners LLC v. Kaufman, 856 F. Supp. 2d 1084, 1088 (D. Ariz. 2012) (holding it is appropriate to strike a sham declaration that contradicts prior deposition testimony). The January 31 press release is a perfect example of Robb’s involvement in the fraud in this case. He admits on summary judgment that he was experienced in preparing and issuing press releases as a general matter, including knowing how and why to issue them. See CSOF No. 93. He also admits that Crown’s press releases were designed to disclose information he thought would be pertinent to the market and positively impact the stock price. See CSOF No. 94. And he remarked during his deposition that Aninye did not “even [know] what a press release was or how to disseminate it.” See Doc. 154-5, at 157:14-17. This served as a key opportunity for Robb to drive Crown’s marketing campaign in the direction he wanted. Aninye was very concerned, however, with the way Robb handled the press releases. Typically, he and Robb would talk about Crown and its products, and then Robb would write the press releases. However, Robb often was too “trigger happy” issuing the releases, with Aninye frustrated that Robb was overselling the company. See Doc. 161-4, at 214:24-25, 215:1. In fact, the frustration grew to such a level that Aninye stopped telling Robb details about operations because the next day, a press release would come out without Aninye having the opportunity to review it. Id. at 194:12-22. It is unconverted that the January 31 press release was published the very same day the Ritman Campaign began. That serves to explain Robb’s urgency in getting the release issued without Aninye’s review (not the supposed vacation plans Robb cannot recall). As noted above, Robb had a lot riding on the line with the investor group. His function was to Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 11 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 9 - promote Crown to “provide the stock with a true market” (see Doc. 149-5, at 1) for the precise length of the Ritman Campaign. If, as he claims, he was unaware of the mechanics behind Crown’s business or products and was relying on Aninye for that data, then it was negligent at a minimum for him to rush the press releases out the door without waiting for Aninye’s ultimate approval.5 Concerning Crown’s press release dated February 7, 2012, Robb now claims, conveniently, on summary judgment that he actually recalls the release and that Aninye approved it. See CSOF No. 104. This is a remarkable about-face, however, from the position he took at his deposition: “I don’t recall [that press release], but I – I reviewed a lot of the press releases that Steve put out.” See Doc. 154-5, at 169:23-25; 170:1. The Court should strike Robb’s contradictory statements. See B2B, 856 F. Supp. 2d at 1088. While Robb does not recall the February 7 press release, Aninye does. He testified at his deposition that Robb “did all the press releases” and that for this release in particular, Robb again misrepresented the PomCom. See Doc. 149-4, at 212:11; 228:2-3. Contrary to what Robb wrote in the release, the PomCom was not then generating revenue – instead, the support technology behind the device would allow the company to generate revenue down the road. Id. at 228:2-3. But as noted above, the PomCom’s success, and the success of Crown overall, was always dependent on capital, which Robb knew from the beginning. At bottom, Robb has not identified any evidence to challenge the SEC’s claim with respect to the press releases. A reasonable person in like circumstances with the years of public company experience that Robb had under his belt would not haphazardly publish misleading press releases that oversold the extent of Crown’s business and operations. See Hughes Cap., 124 F.3d at 453. Accordingly, the conclusion to be drawn from Robb’s participation in Crown’s promotional efforts was his undivided loyalty to the investor 5 Robb claims in his Declaration that Aninye told FINRA in a telephone call that he (Aninye) approved the January 31 press release. See Doc. 178-3, at ¶ 6. Pursuant to Fed. R. Civ. P. 56(c)(2) and LRCiv 7.2(m)(2), the SEC objects to this testimony. First, this encounter never happened. Robb cites no evidence or any part of the record to show that any such interview ever took place. And second, even if it did take place, what Aninye said would be hearsay and not within any exception. Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 12 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 10 - group, and that he would stop at nothing to ensure Crown looked like a public success during the Ritman Campaign to protect the group’s investment position. Indeed, Robb’s and Larson’s responses to the SEC’s question at their depositions about why they were so concerned with Crown is quite telling: Robb: “[Crown is] a publicly traded company and there’s – you know, there’s investors involved”; Larson: “[I]t was important for us to see [Crown] succeed at all costs.” See Doc. 154-5, at 102:11-13; 154-2, at 269:21-22. In sum, Robb has not come forward with any evidence to genuinely dispute that he acted negligently in this case. Accordingly, the Court should grant summary judgment in favor of the SEC on Count II of the Complaint for Robb’s violations of Section 17(a)(3) of the Securities Act. And furthermore, the Court also should enter injunctive relief and disgorgement plus prejudgment interest against Robb, as he failed to offer any evidence (or even any argument at all in his Opposition) as to the propriety of those remedies or the SEC’s calculation of monetary relief. B. Robb Has Failed to Meet the Advice of Counsel Defense Robb has not met the advice of counsel defense. The defense involves four elements: (i) a complete disclosure to counsel; (ii) a request for counsel’s advice as to the legality of the contemplated action; (iii) receipt of advice that it was legal; and (iv) reliance on the advice in good faith. See SEC v. Goldfield Deep Mines Co., 758 F.2d 459, 467 (9th Cir. 1985). To prevail on the defense, a defendant must satisfy all four elements, and it is the defendant who bears the burden of proof. See id.; see also SEC v. CMKM Diamonds, Inc., No. 08-0437, 2011 U.S. Dist. LEXIS 80987, at *10 (D. Nev. July 25, 2011), rev’d on other grounds, 729 F.3d 1248 (9th Cir. 2013). Robb has failed to satisfy that burden. Putting aside the fact that Zouvas himself testified at his deposition that Robb has never been a client (see Doc. 148-3, at 41:13-15), Robb has expressly admitted that he has not satisfied the first element of the defense: “Defendant agrees he did not provide information to Zouvas . . . .” See CSOF No. 125. That in and of itself is fatal. With respect to the remaining elements, Robb simply claims in his Declaration that he “relied on legal advice from Zouvas regarding Crown that I received through Larson.” Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 13 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 11 - See Doc. 178-3, at ¶ 9. This generalization is improper as a matter of law. A defendant invoking advice of counsel must set out evidence showing a full disclosure, including the underlying facts to his claims, and cannot rely on vague, unsubstantiated assertions. SEC v. Apartments Am. LLC, No. 12-0754, 2014 U.S. Dist. LEXIS 27633, at *20-21 (C.D. Cal. Mar. 3, 2014). Indeed, “[t]his claimed defense requires precision in what defendants told their lawyers, what advice their lawyers gave about legality of specific representations, and subsequent reliance on that specific advice blessing a particular representation.” Id. at *20. A defendant cannot rely on self-serving testimony that he or she “just relied” on counsel. SEC v. Milanowski, No. 08-0511, 2010 U.S. Dist. LEXIS 44770, at *33 (D. Nev. Mar. 15, 2010). Robb has failed to meet these requirements. In fact, when asked specifically at his deposition how he relied on any legal advice, his response was a sobering “I don’t know how to answer that question.” See Doc. 148-10, at 235:2-5. Unfortunately, not being able to answer the question means he cannot prevail on the defense. Even if he had prevailed on the defense, it would be relevant only to the SEC’s claim for injunctive relief (not for his underlying violations of the securities laws), and is only one of several factors for the Court to consider in entering an injunction. Goldfield, 758 F.2d at 467; Milanowski, 2010 U.S. Dist. LEXIS at *34. As Robb does not challenge the SEC’s claim for injunctive relief, the advice of counsel defense ultimately is moot. III. CONCLUSION For the reasons set forth above and in the SEC’s Motion, the SEC respectfully requests the Court grant summary judgment in its favor. DATED: February 22, 2019 Respectfully submitted, SECURITIES AND EXCHANGE COMMISSION By: /s/ Patrick R. Costello ________________________ Patrick R. Costello Ann H. Petalas Attorneys for Plaintiff Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 14 of 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATE OF SERVICE I certify that on February 22, 2019, I caused to be served the foregoing PLAINTIFF’S REPLY MEMORANDUM IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO DEFENDANT CAMERON F. ROBB either by (i) using the CM/ECF system, which will send notification of such filing to counsel for Defendants at the following addresses; or (ii) sending via electronic mail to those counsel not yet registered on the CM/ECF system at the following addresses: Alan S. Baskin Baskin Richards PLC 2901 N. Central Ave., Ste. 1150 Phoenix, AZ 85012 alan@baskinrichards.com Roger L. Scott Greenberg Traurig, LLP 3161 Michelson Drive, Ste. 1000 Irvine, CA 92612 scottro@gtlaw.com Jason M. Hopkins Jason S. Lewis DLA Piper LLP 1717 Main Street, Ste. 4600 Dallas, TX 75201 jason.hopkins@dlapiper.com jason.lewis@dlapiper.com Anthony B. Bingham Bingham Law 1423 South Higley Road Building 4, Suite 110 Mesa, AZ 85206 tony@binghamlawaz.com /s/ Patrick R. Costello Patrick R. Costello Case 2:17-cv-00427-SPL Document 181 Filed 02/22/19 Page 15 of 15