United States Securities And Exchange Commission v. Eydelman et al

MOTION for Summary Judgment

D.N.J.May 16, 2017

1 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY __________________________________________ : UNITED STATES SECURITIES AND : EXCHANGE COMMISSION : : Plaintiff, : : vs. : Case No. 3:14-cv-01742-MAS-TJB : VLADIMIR EYDELMAN, et al. : : Defendants. : _________________________________________ : PLAINTIFF U.S. SECURITIES AND EXCHANGE COMMISSION’S MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANT STEVEN METRO Pursuant to Federal Rule of Civil Procedure 56, plaintiff U.S. Securities and Exchange Commission (“SEC”) respectfully moves for an entry of summary judgment in its favor and against Defendant Steven Metro on each of the charges advanced in its complaint. As set forth in the memorandum in support, filed herewith, based on his recent conviction and the other evidence presented by the SEC herewith, there are no questions of material fact, and the Court should enter final judgment against Metro for his involvement in this long-running insider trading scheme. The SEC also requests that, in addition to finding Metro liable, the Court impose upon Metro an injunction and a civil monetary penalty as set forth in the SEC’s Memorandum in Support. For the Court’s convenience, the SEC has also filed a proposed order. Case 3:14-cv-01742-MAS-TJB Document 34 Filed 05/16/17 Page 1 of 2 PageID: 207 2 Dated: May 16, 2017 Respectfully submitted, /s/ Stephan J. Schlegelmilch Stephan J. Schlegelmilch Carolyn M. Welshhans U.S. SECURITIES AND EXCHANGE COMMISSION 100 F Street, N.E. Washington, DC 20549 (202) 551-4935 (Schlegelmilch) (202) 772-9292 (facsimile) SchlegelmilchS@SEC.gov Counsel for Plaintiff U.S. Securities and Exchange Commission CERTIFICATE OF SERVICE I hereby certify, this 16th day of May, 2017, that I served a true and correct copy of the foregoing with the Clerk of the Court using the Court’s CM/ECF system. /s/ Stephan J. Schlegelmilch Counsel for Plaintiff U.S. Securities and Exchange Commission Case 3:14-cv-01742-MAS-TJB Document 34 Filed 05/16/17 Page 2 of 2 PageID: 208 1 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY __________________________________________ : UNITED STATES SECURITIES AND : EXCHANGE COMMISSION : : Plaintiff, : : vs. : Case No. 3:14-cv-01742-MAS-TJB : VLADIMIR EYDELMAN, et al. : : Defendants. : _________________________________________ : MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF U.S. SECURITIES AND EXCHANGE COMMISSION’S MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANT STEVEN METRO Stephan J. Schlegelmilch Carolyn M. Welshhans U.S. SECURITIES AND EXCHANGE COMMISSION Division of Enforcement 100 F Street, N.E. Washington, DC 20549 (202) 551-4935 (Schlegelmilch) (202) 772-9292 (facsimile) SchlegelmilchS@SEC.gov Counsel for Plaintiff U.S. Securities and Exchange Commission May 16, 2017 Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 1 of 24 PageID: 209 i TABLE OF CONTENTS TABLE OF AUTHORITIES ......................................................................................................................... ii INTRODUCTION ........................................................................................................................................... 1 RELEVANT PROCEDURAL HISTORY ................................................................................................... 1 STATEMENT OF FACTS ............................................................................................................................. 3 A. Metro’s Access to Material Nonpublic Information ........................................................... 3 B. Metro’s Repeated Misappropriation of Material Nonpublic Information ....................... 4 ARGUMENT ..................................................................................................................................................... 8 I. THE SEC IS ENTITLED TO SUMMARY JUDGMENT AS A MATTER OF LAW ......... 8 A. The Legal Standards for Summary Judgment and Collateral Estoppel ............................ 9 B. Metro Violated Exchange Act Section 10(b) and Securities Act Section 17(a)(1) ........ 11 C. Metro Violated Exchange Act Section 14(e) ...................................................................... 12 II. THE COURT SHOULD IMPOSE A PERMANENT INJUNCTION ................................. 13 III. THE SEC DOES NOT SEEK AN ORDER OF DISGORGEMENT OR PREJUDGMENT INTEREST ....................................................................................................... 16 IV. THE COURT SHOULD IMPOSE A SIGNIFICANT MONETARY PENALTY ............. 16 A. The Court’s Authority to Impose a Penalty in this Insider Trading Case ..................... 16 B. The Facts Warrant a Significant Penalty ............................................................................. 17 CONCLUSION ............................................................................................................................................... 19 Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 2 of 24 PageID: 210 ii TABLE OF AUTHORITIES Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) .............................................................................................................................. 9 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) .............................................................................................................................. 9 Chisholm v. Defense Logistics Agency, 656 F.2d 42 (3d Cir. 1981) ................................................................................................................ 10 Emich Motors Corp. v. General Motors Corp., 340 U.S. 558 (1951) ............................................................................................................................ 10 Jean Alexander Cosmetics, Inc. v. L’Oreal USA, Inc., 458 F.3d 244 (3d Cir. 2007) .......................................................................................................... 9, 10 Montana v. United States, 440 U.S. 147 (1979) ............................................................................................................................ 10 Nationwide Life Ins. Co. v. Richards, 541 F.3d 903 (9th Cir. 2008) ............................................................................................................... 8 Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979) .............................................................................................................................. 9 Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120 (3d Cir. 1998) ................................................................................................................ 9 SEC v. Blackwell, 477 F. Supp. 2d 891 (S.D. Ohio 2007) ............................................................................... 10, 14, 15 SEC v. Bonastia, 614 F.2d 908 (3d Cir. 1980) ....................................................................................................... 13, 15 SEC v. Clay Capital Mgmt., No. 2:11-cv-05020, 2013 WL 5946989 (D.N.J. Nov. 6, 2013) .......................... 12, 13, 14, 15, 16 SEC v. Contorinis, 743 F.3d 296 (2d Cir. 2014) .............................................................................................................. 16 SEC v. Dimensional Entm’t Corp., 493 F. Supp. 1270 (S.D.N.Y. 1980) ................................................................................................. 10 SEC v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996) ............................................................................................................ 11 Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 3 of 24 PageID: 211 iii SEC v. Graystone Nash, Inc., 25 F.3d 187 (3d Cir. 1994) .................................................................................................................. 7 SEC v. Gupta, 569 Fed. Appx. 45 (2d Cir. 2014) ..................................................................................................... 17 SEC v. Interlink Data Network of Los Angeles, Inc., No. 93–3073, 1993 WL 603274 (C.D. Cal. Nov. 15, 1993) ........................................................... 8 SEC v. Johnson, No. 02–5490, 2004 WL 5561799 (D.N.J. Aug. 27, 2004) ............................................................ 17 SEC v. Leach, 156 F.Supp.2d 491 (E.D. Penn. 2001) .............................................................................................. 2 SEC v. Obus, 693 F.3d 276 (2d Cir. 2012) .............................................................................................................. 11 SEC v. Resnick, 604 F. Supp. 2d 773 (D. Md. 2009) ................................................................................................. 10 SEC v. Sekhri, No. 98 Civ. 2320, 2002 WL 31100823 (S.D.N.Y. July 22, 2002) ......................................... 17, 18 SEC v. Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 1997) ................................................................................................... 14 SEC v. Suman, 684 F. Supp. 2d 378 (S.D.N.Y. 2010) .............................................................................................. 14 SEC v. Svaboda, 409 F. Supp. 2d 331 (S.D.N.Y. 2006) ....................................................................................... 14, 15 SEC v. Teo, No. 04–01815, 2011 U.S. Dist. LEXIS 103413 (D.N.J. Sept. 12, 2011) ............................. 13, 15 SEC v. Warde, 151 F.3d 42 (2d Cir. 1998) ......................................................................................................... 16, 17 SEC v. Zimmerman, 854 F. Supp. 896 (N.D. Ga. 1993) ..................................................................................................... 8 Secretary of the United States Dep’t of Labor v. Kwasny, 853 F.3d 87 (3d Cir. 2017) ......................................................................................................... 2, 3, 4 United States v. O’Hagan, 521 U.S. 642 (1997) ............................................................................................................... 11, 12, 18 Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 4 of 24 PageID: 212 iv United States v. Chestman, 947 F.2d 551 (2d Cir. 1991) .............................................................................................................. 12 United States v. Stelmokas, 100 F.3d 302 (3d Cir.1996) ................................................................................................................. 2 FEDERAL RULES AND STATUTES Federal of the Rules of Civil Procedure Rule 36 of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 36(a)(3) ................................... 2 Rule 56 of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 56(e) .................................... 4, 9 Securities Act of 1933 Section 17(a) [15 U.S.C. § 77q(a)] ................................................................................................ 11 Securities Exchange Act of 1934 Section 10(b) [15 U.S.C. § 78j(b)]................................................................................................. 1, 10 Section 14(e) [15 U.S.C. § 78n(e)] ......................................................................................... 1, 12, 13 Section 21A(a) [15 U.S.C. § 78u-1(a)] ....................................................................................... 16, 17 Section 21A(a)(1) [15 U.S.C. § 78u-1(a)(1)] .................................................................................... 17 Section 21A(a)(2) [15 U.S.C. § 78u-1(a)(2)] .................................................................................... 17 Rule 10b-5 [17 C.F.R. § 240.10b-5] ........................................................................................................ 10, 13 Rule 14e-3 [17 C.F.R. § 240.14e-3] ......................................................................................................... 12, 13 Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 5 of 24 PageID: 213 1 INTRODUCTION Pursuant to Federal Rule of Civil Procedure 56, plaintiff U.S. Securities and Exchange Commission (“SEC”) submits this Memorandum of Law in support of its Motion for Summary Judgment against Defendant Steven Metro. Based on his recent conviction in United States v. Steven Metro, District of New Jersey Case No. 3:15-cr-00028, and the other evidence presented by the SEC herewith, there are no questions of material fact, and the Court should enter final judgment against Metro for his involvement in this long-running insider trading scheme. RELEVANT PROCEDURAL HISTORY On March 19, 2014, the SEC filed its Complaint in this matter. See Statement of Material Facts Not In Dispute (“SOMF”), filed contemporaneously herewith, at ¶ 51. The Complaint charged Metro and Defendant Vladimir Eydelman with participating in a five-year-long insider trading scheme in which Metro misappropriated from his law firm employer material nonpublic information regarding at least 13 upcoming corporate transactions, acquisitions, and tender offers, which he then tipped to his friend, Frank Tamayo,1 who then tipped Eydelman. See id. On the same day that the SEC filed its Complaint, Metro was also arrested, and he was later indicted on January 15, 2015. See SOMF ¶ 4. The Indictment formally charged Metro with conspiracy to commit securities fraud and tender offer fraud in violation of 18 U.S.C. § 371 (Count One); securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2 (Count Two); and tender offer fraud in violation of 15 U.S.C. §§ 78n(e) and 78ff, 17 C.F.R. § 240.14e-3(a), and 18 U.S.C. § 2 (Count Three). See SOMF ¶ 4. On November 12, 2015, Metro pled guilty to Counts One and Two of the Indictment. See id. And, on September 14, 2016, 1 Frank Tamayo is the “middleman” identified in the Commission’s complaint. See SOMF at ¶ 7. The Commission filed charges against Tamayo on September 19, 2014. See SEC v. Frank Tamayo, District of New Jersey Case No. 3:14-cv-05844. Tamayo cooperated with both the SEC and criminal authorities and settled his case with the SEC soon afterward. Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 6 of 24 PageID: 214 2 he was sentenced to 46 months incarceration, three years of supervised release, and a $10,000 fine. See id. Metro’s co-conspirators, Eydelman and Tamayo, have likewise pled guilty and been sentenced, but, unlike Metro, both also reached full settlements with the SEC. See SOMF ¶¶ 6, 8-9. On October 6, 2016, the Court lifted the stay of this matter as to Metro,2 and the parties commenced a brief period of discovery. On October 18, 2016, this Court issued an order requiring, inter alia, that the parties exchange initial disclosures pursuant to Federal Rule of Civil Procedure 26 by or before December 5, 2016. See SOMF ¶ 53. The SEC timely provided its initial disclosures to Metro, but Metro has never provided his to the SEC. See id. On October 27, 2016, the SEC served Metro with written discovery, including requests for admission pursuant to Federal Rule of Civil Procedure 36. Metro, however, declined to respond to any of the SEC’s written discovery, despite the SEC staff’s follow-up request.3 See SOMF ¶ 54. On October 21, 2016, the SEC noticed Metro’s deposition. In lieu of testifying, Metro provided the SEC with a declaration asserting that he would refuse to answer any questions regarding the allegations in the Complaint, his scienter, his knowledge of the fact that Tamayo passed the information to others, including Eydelman, and other elements of the SEC’s claims on the basis of his Fifth Amendment right against self-incrimination.4 See SOMF ¶ 55. Metro’s Answer to the Complaint does not assert any affirmative defenses, nor does it specifically deny any of the SEC’s 2 This matter was stayed by the Court on September 19, 2014, when the Court granted the United States’ motion to intervene and stay discovery. See ECF Nos. 17 (motion) and 18 (order). 3 By failing to respond to the SEC’s requests for admission, each request is deemed admitted and “conclusively established” in this matter. See Fed. R. Civ. P. 36(a)(3); see also Secretary of the United States Dep’t of Labor v. Kwasny, 853 F.3d 87, 91 (3d Cir. 2017) (“Matters deemed admitted due to a party’s failure to respond to requests for admission are ‘conclusively established’ under Federal Rule of Civil Procedure 36(b), and may support a summary judgment motion.”). 4 It is well settled that in civil cases such as this, “negative inferences may be drawn against parties who assert the Fifth Amendment privilege.” SEC v. Leach, 156 F.Supp.2d 491, 495 (E.D. Penn. 2001) (citing United States v. Stelmokas, 100 F.3d 302, 311 (3d Cir.1996)). Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 7 of 24 PageID: 215 3 allegations; instead, Metro “invoke[d] his Fifth Amendment privilege with respect to each and every allegation of the Complaint.” See SOMF ¶ 52. STATEMENT OF FACTS A. Metro’s Access to Material Nonpublic Information Prior to his arrest on March 19, 2014, Metro worked as a managing clerk at Simpson Thacher & Bartlett, LLP (“Simpson Thacher”), an international law firm that specializes in mergers, acquisitions, tender offers and other large corporate transactions. See SOMF ¶¶ 3, 10. Simpson Thacher served as an adviser to a participant in each of the 13 transactions that are at issue in this case.5 See SOMF ¶¶ 10, 11-23. As one would expect, Simpson Thacher obtained material, nonpublic information regarding each of the transactions on which it worked, including the parties involved, the precise timing of the transaction announcement, and the transaction price. See SOMF ¶ 27. By virtue of his employment by Simpson Thacher, Metro was able to and did access highly confidential information related to upcoming corporate deals, including each of the 13 transactions that are at issue in this case. See SOMF ¶ 33. Simpson Thacher owed and owes fiduciary duties of loyalty and confidentiality to its clients, which include an obligation to maintain the confidentiality of information obtained by, or provided to, Simpson Thacher and its employees in connection with advising clients. See SOMF ¶ 28. Metro, 5 Specifically, as laid out in the SEC’s SOMF, Simpson Thacher advised a participant in (1) Tyco International, Inc.’s January 2010 acquisition of Brink’s Home Securities Holdings, Inc., (2) CNA Financial Corporation’s November 2010 acquisition of all of the common stock of CNA Surety Corporation through a tender offer, (3) the May 2012 acquisition of Collective Brands by a consortium of companies, (4) the April 2011 acquisition of Graham Packaging Company, Inc. by Silgan Holdings, Inc., (5) the May 2011 tender offer for International Coal Group by Arch Coal, Inc., (6) the February 2013 acquisition of OfficeMax by Office Depot, Inc., (7) Omnicare’s August 2011 tender offer for PharMerica Corporation, (8) the September 2012 acquisition of Sealy Corporation by Tempur-Pedic International, Inc., (9) the February 2009 loan to Sirius XM Radio, (10) the April 2011 acquisition of SMART Modular Technologies (WWH), Inc. by Silver Lake Partners and Silver Lake Sumeru, (11) the July 2010 merger of Smithtown Bancorp, Inc. and People’s United Financial, Inc., (12) Toshiba Medical Systems Corp.’s April 2011 tender offer for Vital Images, Inc., and (13) another potential transaction in 2012. See SOMF ¶¶ 11-23. Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 8 of 24 PageID: 216 4 as an employee of Simpson Thacher with access to confidential client information, owed a duty or obligation arising from his relationship of trust and confidence to his employer and its clients to keep confidential such nonpublic information. See SOMF ¶ 29. Metro knew he had a duty as an employee of Simpson Thacher to keep client information confidential and to not trade on such information. Metro attended law school, and he also received extensive and recurring training from his employer regarding his fiduciary duties to Simpson Thacher’s clients and his duty to refrain from trading upon and tipping to others the material, nonpublic information he possessed by virtue of his employment. See SOMF ¶¶ 3, 30-32. Additionally, Metro repeatedly affirmed, in writing, that he understood that “the firm’s confidentiality policy means, among other things, that no lawyer or other employee of the firm may, under any circumstances, use information obtained at or through the firm, or Material Non-public information obtained from any sources, in deciding whether to buy, sell or hold securities, or in assisting others to make such a decision.” See SOMF ¶ 31 and Exhibit B thereto at ¶ 8. Thus, Metro knew that he was not permitted to trade on the basis of the nonpublic, client-related information he accessed in the course of his employment, and he knew that he could not provide others with this information, especially when he expected the person to whom he provided the information to trade, or to cause others to trade, on the basis of the information. See SOMF ¶ 32. B. Metro’s Repeated Misappropriation of Material Nonpublic Information Despite all this, since at least February 2009, Metro misappropriated and disclosed Simpson Thacher’s material, nonpublic client information at least 13 times over a five-year period for the purpose of reaping a benefit for himself and others. See SOMF ¶ 34. Metro obtained the information by a number of means, including, on at least one occasion, working on the matter. But, more often, Metro misappropriated the information by surreptitiously accessing Simpson Thacher’s confidential document management system and searching for the names of clients, upcoming deals, Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 9 of 24 PageID: 217 5 and documentation associated with the deals. See SOMF ¶¶ 33, 35-36. After stealing the information, Metro then contacted his long-time friend, Tamayo, and arranged in-person meetings at coffee shops or bars located near Metro’s and Tamayo’s respective places of employment. See SOMF ¶ 34. During these meetings, Metro passed the misappropriated information to Tamayo so that Tamayo and others could trade on it. See id. On at least one occasion, Metro also personally traded on the material nonpublic information he stole. See SOMF ¶ 39. In that instance, Metro received $667 in illegal profits. See id. Thirteen times Metro passed the material, nonpublic information to Tamayo, and on each of these occasions, Tamayo passed the material, nonpublic information he received from Metro on to Eydelman, his long-time friend and stockbroker. See SOMF ¶ 40. Metro knew that Tamayo intended to and did trade upon the material, nonpublic information he received from Metro – indeed, that was why he passed it to him. See SOMF ¶ 41. Metro also knew that Tamayo intended to and did pass the material, nonpublic information he received from Metro on to Eydelman, even though he may not have known Eydelman by name. See SOMF ¶ 42. For example, during a January 2014 conversation between Metro and Tamayo, which was recorded by the FBI with Tamayo’s cooperation, Metro admitted that he understood “the stockbroker” – Eydelman – used the information Metro passed to trade and that the stockbroker’s trading benefited Metro and Tamayo by masking the unusualness of their trades – i.e., to make the trades “look kosher” and “cover up a little bit.” See SOMF ¶ 47. While Metro passed the information to Tamayo in order to provide a financial gift to his close friend, there were other, purely self-interested reasons for his actions. Metro knew that it was dangerous for him to trade in his own name. See SOMF ¶¶ 44-47. Consequently, he and Tamayo reached an agreement that a portion of Tamayo’s trading profits for each set of trades would be allocated to Metro, and at the time of Metro’s arrest that sum had grown to approximately $168,000. See SOMF ¶ 44. Just before his arrest, on January 28, 2014, Metro and Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 10 of 24 PageID: 218 6 Tamayo agreed that Tamayo would “liberate some cash” for Metro and to pay Metro $30,000, which Metro understood would come from “the stockbroker,” i.e., Eydelman: MR. TAMAYO: Yeah. My -- oh, I have -- my mom went to Cuba. I have your cigars actually at the [cigar bar]. MR. METRO: Oh, nice. Okay. MR. TAMAYO: Yeah. Because I split the box between you and my broker friend, you know, the stock broker. MR. METRO: Okay. MR. TAMAYO: So I was going to bring -- I was going to bring it back, and what happened was he said, “Just keep it here in the humidor,” but then now he’s away. So I hoping maybe next week we can meet and I’ll give you the whole box. MR. METRO: Oh, that’s cool. Yeah. . . . . MR. TAMAYO: Yeah. And he [the stockbroker] -- you know, he’s getting -- I also asked him to see if he could get me like 30K, 40, because I know you -- so that might help. MR. METRO: Yeah, that would help. Yeah, that would help. MR. TAMAYO: You know, because I know that he obviously has to -- you know, in order to, you know, make everything look kosher, he passed it to a couple of his clients. MR. METRO: Okay. MR. TAMAYO: So I said to him, I said, “Here’s a” – “Is there any way you could give me like 30K? Because I can’t take it out of my -- you know, because all our money’s tied up in the retirement.” MR. METRO: Right. Right. MR. TAMAYO: So he -- he said he's thinking about it. So I’m actually going to meet with him again, you know, like Monday or Tuesday of next week. And then he’s going to – he’s going to see if he can give me cash. MR. METRO: All right. MR. TAMAYO: So that should be good. MR. METRO: That works. That totally works. MR. TAMAYO: But then, you know, we’ll see -- . . . . MR. METRO: You got to try to liberate some cash somehow, other than just taking it flat out. Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 11 of 24 PageID: 219 7 MR. TAMAYO: Yeah. Oh, I know. You’re using a lot of your things [to purchase a new house]. MR. METRO: Yeah, I'm using everything that I have. MR. TAMAYO: If I get my broker to give you, you know, at least 30K, you know, we'll take it off the 168 there. So all right. So let’s see, one -- MR. METRO: Yeah, we’re okay. Stop. MR. TAMAYO: Yeah. . . . . MR. TAMAYO: Absolutely. He actually -- my broker actually asked me about you. Like, “Anything new?” I was like, “No.” You know, so – MR. METRO: But those caps don't really pay off. I mean, they pay off for us, but what good is giving him a hit? MR. TAMAYO: I know. MR. METRO: It’s not making him any money. MR. TAMAYO: Yeah. But you know, the thing is that it’s good because it actually, you know, covers up a little bit. That’s all. MR. METRO: Yeah, I know, it’s true. But you think he would kick you something -- MR. TAMAYO: Oh, no -- MR. METRO: -- because of that? MR. TAMAYO: I mean, absolutely. MR. METRO: Yeah. MR. TAMAYO: He’s like -- he might be like the cheapest bastard around, you know? All right. So we got this -- let me just start working on this. See SOMF ¶ 47.6 And, in February 2014, Eydelman also passed $7,000 in cash to Tamayo with the expectation that Tamayo would use the money to compensate Metro for providing material, nonpublic information to Tamayo and Eydelman. See SOMF ¶ 48. 6 We anticipate that Metro may try to explain away this discussion in his opposition to this motion, but he refused to answer the Complaint, respond to discovery, or answer deposition questions about this and other topics on the basis of the Fifth Amendment, see SOMF ¶¶ 55-57, and allowing such an argument now would unfairly prejudice the SEC. See SEC v. Graystone Nash, Inc., 25 F.3d 187, 191 (3d Cir. 1994) (“In a civil trial, a party’s invocation of the privilege may be proper, but it does not take place in a vacuum; the rights of the other litigant are entitled to consideration as well. One of the situations in which that concern comes into play arises when one party invokes the Fifth Amendment during discovery, but on the eve of trial changes his mind and decides to waive the privilege. At that stage, the adverse party—having conducted discovery and prepared the case Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 12 of 24 PageID: 220 8 All told, Metro, Eydelman, Tamayo, and others reaped over $5.5 million in illegal profits as a direct and proximate cause of Metro’s illegal conduct. See SOMF ¶ 49. Simpson Thacher also suffered unquantifiable reputational injuries as a result of Metro’s malfeasance, as Metro’s profound breach of trust was widely reported in the media. See SOMF ¶ 50. Four of the transactions – the deals involving CNA Surety Corporation, Vital Images, Inc., International Coal Group, Inc., and PharMerica Corp. – were tender offers. See SOMF ¶ 37. With respect to each of these deals, one or more substantial steps toward the commencement of the transaction had occurred at the time Metro misappropriated the relevant material nonpublic information. See SOMF ¶ 38. ARGUMENT In light of his criminal conviction, Metro is estopped from contesting the SEC’s allegations in this matter and, thus, there is no genuine issue of fact with respect to any of the SEC’s claims against him. Accordingly, the SEC is entitled to summary judgment on all of its claims against Metro. Moreover, based on Metro’s egregious conduct, high degree of scienter, culpability, and the duration of the fraudulent conduct, Metro should be enjoined from future violations of the federal securities laws, and the Court should also impose a monetary penalty of more than $2,000,000. without the benefit of knowing the content of the privileged matter—would be placed at a disadvantage.”); see also Nationwide Life Ins. Co. v. Richards, 541 F.3d 903, 911 (9th Cir. 2008) (“Trial courts generally will not permit a party to invoke the privilege against self-incrimination with respect to deposition questions and then later testify about the same subject matter at trial.”); SEC v. Zimmerman, 854 F. Supp. 896, 899 (N.D. Ga. 1993) (“[T]he Fifth Amendment privilege cannot be invoked to oppose discovery and then tossed aside to support a party’s assertions.”); SEC v. Interlink Data Network of Los Angeles, Inc., No. 93–3073, 1993 WL 603274, *8 (C.D. Cal. Nov. 15, 1993) (“[B]ecause they kept their silence, the defendants cannot now respond to this motion, at least insofar as they may attempt to submit evidence now which they refused to tender during discovery.”). Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 13 of 24 PageID: 221 9 I. THE SEC IS ENTITLED TO SUMMARY JUDGMENT AS A MATTER OF LAW A. The Legal Standards for Summary Judgment and Collateral Estoppel Granting summary judgment avoids unnecessary and protracted litigation by permitting prompt resolution of controversies on their merits, without a trial, where there are no genuine issues of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). “The summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy and inexpensive determination of every action.’” Id. at 327. Pursuant to Rule 56, the Court should enter summary judgment when the movant demonstrates that there is no genuine issue of material fact and it is entitled to a judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). On a showing of the absence of a genuine issue of material fact, the burden shifts to the defendant to dispute that showing with specific evidentiary facts. Fed. R. Civ. P. 56(e); see also Celotex Corp., 477 U.S. at 322. Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment—factual disputes that are irrelevant or unnecessary will not be counted. Anderson, 477 U.S. at 248; Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 129 (3d Cir. 1998). Evidentiary showings that are merely colorable, conclusory, speculative, or not significantly probative cannot defeat the motion. Anderson, 477 U.S. at 249-50. The doctrine of collateral estoppel provides that a prior judgment “precludes relitigation [in a second suit] of issues [of fact or law] actually litigated and necessary to the outcome of the first action.” Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 326 n.5 (1979); see also Jean Alexander Cosmetics, Inc. v. L’Oreal USA, Inc., 458 F.3d 244, 248-49 (3d Cir. 2007). The doctrine is especially applicable to civil cases that follow findings made in a criminal matter because of the higher burden of proof borne in the earlier criminal proceeding. As observed by one district court: “The prevalence of Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 14 of 24 PageID: 222 10 estoppel in civil cases following their criminal counterparts is due in part to the court’s desire to avoid inconsistent verdicts in light of the higher burden of proof required in the prior criminal case.” SEC v. Blackwell, 477 F. Supp. 2d 891, 899 (S.D. Ohio 2007); see also Emich Motors Corp. v. General Motors Corp., 340 U.S. 558, 568 (1951) (applying doctrine of estoppel in civil case based upon defendant’s previous criminal conviction); Chisholm v. Defense Logistics Agency, 656 F.2d 42, 47-48 (3d Cir. 1981) (same). Collateral estoppel is proper if: (1) the identical issue was previously adjudicated; (2) the issue was actually litigated; (3) the previous determination was necessary to the decision; and (4) the party being precluded from relitigating the issue was fully represented in the prior action. Jean Alexander Cosmetics, 458 F.3d at 249. The party against whom the estoppel is applied must have had a full and fair opportunity “to litigate the issue in question in the prior action,” determined by a final and valid judgment. Id. To this end, the Court must examine whether the party against whom collateral estoppel is asserted had the opportunity to present evidence and mount a defense against the criminal charges. Blackwell, 477 F. Supp. 2d at 901. The criminal indictment underlying the conviction need not exactly match the civil complaint in order to have a preclusive effect. Id. at 900. Even if the statutory violations differ, the issue is whether the factual allegations underlying the criminal convictions are sufficient to establish the civil allegations. SEC v. Dimensional Entm’t Corp., 493 F. Supp. 1270 (S.D.N.Y. 1980); see Blackwell, 477 F. Supp. 2d at 900 (issue is whether the indictment and the civil complaint involve the same conduct with respect to the alleged violations). “The doctrine of collateral estoppel bars a party from relitigating an issue of fact or law determined against that party in an earlier action, even if the second action differs significantly from the first one.” SEC v. Resnick, 604 F. Supp. 2d 773, 778 (D. Md. 2009) (citing Montana v. United States, 440 U.S. 147, 153 (1979)). Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 15 of 24 PageID: 223 11 B. Metro Violated Exchange Act Section 10(b) and Securities Act Section 17(a)(1) Counts I and II of the Complaint against Metro charge him with violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] (Count I) and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] (Count II). Securities Act Section 17(a) prohibits fraud in the offer or sale of securities, and Exchange Act Section 10(b) prohibits fraud in connection with the purchase or sale of securities. As such, in situations such as is present here, wherein Metro participated in a several-years-long fraudulent scheme to buy and sell securities based upon misappropriated material, nonpublic information, including the selling of put options, Metro’s conduct violates both statutes. See SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1467 (2d Cir. 1996) (noting that Section 17(a) and Section 10(b) have “essentially the same elements”). Consequently, to establish its “misappropriation theory” Section 10(b) and Section 17(a) claims against Metro,7 the SEC must show that Metro “misappropriate[d] confidential information for securities trading purposes, in breach of a duty owed to the source of the information[, and that his] undisclosed, self-serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defraud[ed] the principal of the exclusive use of that information.” United States v. O’Hagan, 521 U.S. 642, 652 (1997); see also SEC v. Obus, 693 F.3d 276, 286 (2d Cir. 2012) (“To be held liable, a tipper must (1) tip (2) material non-public information (3) in breach of a fiduciary duty of confidentiality owed to . . . the source of the information; (4) for personal benefit to the tipper.”). Here, given his guilty plea to a criminal violation of Section 10(b), there is no question that Metro is liable. See SOMF ¶ 4. Metro misappropriated from Simpson Thacher and Simpson 7 The SEC’s claims could also be conceptualized as “classical theory” insider trading given Metro’s position as a “temporary fiduciary” of the relevant issuers. See O’Hagan, 521 U.S. at 651-52 (“The classical theory applies not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, consultants, and others who temporarily become fiduciaries of a corporation.”). He is equally liable under either theory. Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 16 of 24 PageID: 224 12 Thacher’s clients confidential information for securities trading purposes. See SOMF ¶ 34. The information was material and nonpublic. See id. He owed a duty to Simpson Thacher and its clients, which he regularly affirmed in writing. See SOMF ¶¶ 29-32. And, Metro breached this duty by giving his close friend Tamayo the information he misappropriated for the purpose of benefiting Tamayo and himself, including the approximately $168,000 allocated to Metro pursuant to his agreement with Tamayo. See SOMF ¶¶ 34, 44. There is, therefore, no question of material fact as to Metro’s liability for these two charges, and summary judgment in the SEC’s favor is appropriate. See SEC v. Clay Capital Mgmt., No. 2:11-cv-05020, 2013 WL 5946989, *4 (D.N.J. Nov. 6, 2013) (entering summary judgment on Securities Act Section 17(a) and Exchange Act Section 10(b) insider trading charges against defendant following guilty plea). C. Metro Violated Exchange Act Section 14(e) Similarly, summary judgment in favor of the SEC on its Exchange Act Section 14(e) claim (Count III) is also appropriate. Exchange Act Section 14(e) and Rule 14e-3 thereunder “prohibit[] trades based on material nonpublic information concerning a tender offer that a person knows or has reason to know has been acquired from an insider, either directly or indirectly.” Clay Capital, 2013 WL 5946989 at *3 (citing O’Hagan, 521 U.S. at 669). Unlike Section 10(b) and Rule 10b-5, however, so long as a “substantial step” in furtherance of the tender offer has occurred, Rule 14e-3 prohibits trading regardless of whether such information was obtained through a breach of fiduciary duty. O’Hagan, 521 U.S. 666-678 (discussing liability under Rule 14e-3); see also United States v. Chestman, 947 F.2d 551, 557 (2d Cir. 1991). Here, again, there can be no dispute that Metro is liable. Again, Metro pled guilty to a criminal violation of Section 10(b), see SOMF ¶ 4, which establishes most of the elements of the cause of action. The only remaining elements – that the tip concerned one or more tender offers of which a “substantial step” in furtherance had occurred, and that the tip came directly or indirectly Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 17 of 24 PageID: 225 13 from an insider – are also not in dispute. Four of the 13 transactions at issue were tender offers, and for each of these transactions “substantial steps” had occurred at the time of Metro’s misappropriation. See SOMF ¶¶ 37-38. The information was also both material and nonpublic, and Metro admits that he acquired the information from Simpson Thacher’s confidential document management system at a time when Simpson Thacher was a temporary insider and communicating with other insiders. See SOMF ¶¶ 35-38. Accordingly, summary judgment in the SEC’s favor is again appropriate. See Clay Capital, 2013 WL 5946989 at *4 (entering summary judgment on Section 14(e) after guilty plea). II. THE COURT SHOULD IMPOSE A PERMANENT INJUNCTION Upon finding Metro liable, the Court should permanently enjoin Metro from engaging in future violations of Sections 10(b) and 14(e) of the Exchange Act, Rules 10b-5 and 14e-3 thereunder, and Section 17(a) of the Securities Act. See SEC v. Bonastia, 614 F.2d 908, 912 (3d Cir. 1980) (“section 20(b) of the Securities Act of 1933 . . . and section 21(d) of the Securities Exchange Act . . . provide that whenever it appears to the commission that a person is engaged in acts in violation of the securities laws, an action to enjoin those acts may be brought and, upon a proper showing by the commission, the court shall grant the injunctive relief requested”). In determining whether injunctive relief is warranted, the Third Circuit has articulated five factors: (1) the degree of scienter involved; (2) the isolated or repeated nature of the violations; (3) the defendant’s recognition of the wrongful nature of the conduct; (4) the sincerity of the defendant’s assurances, if any, against future violations; and (5) the likelihood that the defendant’s occupation will present opportunities for future violations. See Clay Capital, 2013 WL 5946989 at *5 (citing SEC v. Teo, No. 04–01815, 2011 U.S. Dist. LEXIS 103413, at *23–27 (D.N.J. Sept. 12, 2011)). In applying these five factors, “no one factor is determinative, but rather, the totality of the circumstances should be considered in reaching a decision.” Id. Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 18 of 24 PageID: 226 14 Here, the balance of the factors weigh heavily in favor of injunctive relief, particularly the fact that Metro’s violations involved a high degree of scienter and were repeated, over and over and over, for almost five years. Metro was also put on notice about the wrongfulness of misusing Simpson Thacher’s and its clients’ information on multiple occasions during the course of his employment. See SOMF ¶¶ 30-31. And, after receiving each written notice, Metro affirmed that he understood the prohibition and that he was not engaging in and would not engage in violative behavior. See SOMF ¶ 31. Yet, while he was providing these assurances to his employer, and while his employer was reasonably relying upon his representations and allowing him to access client confidences, Metro was stealing information, trading on it, and passing it to Tamayo, whom he knew or was reckless in not knowing passed the material, nonpublic information he received from Metro on to “the stockbroker” and others. See SOMF ¶¶ 40-42. Such acts of deception warrant an injunction. See, e.g., SEC v. Suman, 684 F. Supp. 2d 378, 392 (S.D.N.Y. 2010) (lies to Canadian regulators and other acts of concealment weigh in favor of injunctive relief). The extended duration and brazenness of his misconduct likewise merit an injunction. See, e.g., SEC v. Softpoint, Inc., 958 F. Supp. 846, 867 (S.D.N.Y. 1997) (“long and continuing pattern of misconduct demonstrates a reasonable likelihood of recurrent violations”); Suman, 684 F. Supp. 2d at 392 (“The boldness of Defendants’ violation of the securities laws warrants a meaningful remedy.”); SEC v. Svaboda, 409 F. Supp. 2d 331, 343 (S.D.N.Y. 2006) (noting that “‘systematic wrongdoing’ and highly culpable conduct” has been found to warrant permanent injunctive relief). Moreover, Metro engaged in this misconduct over and over and over, for almost five years. See SOMF ¶¶ 11-23. Even absent the extensive, repeated nature of the conduct here, numerous courts have found that the act of tipping itself suggests a higher level of culpability and scienter. See Clay Capital, 2013 WL 5946989 at *5 (“The evidence shows that [defendant] acted with a high degree of scienter given that he admitted to knowingly, willfully, and intentionally tipping [the tippee] on Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 19 of 24 PageID: 227 15 numerous occasions. Although [defendant] was a tipper and did not trade himself, courts have found that ‘the tipper’s conduct, almost invariably, is more culpable than that of the tippee.’”)(citing Blackwell, 477 F. Supp. 2d at 911). The fact that Metro has been criminally convicted and is no longer employed by a law firm is not enough to preclude the issuance of an injunction. See, e.g., Clay Capital, 2013 WL 5946989 at *5 (“The fact that [defendant] has been criminally convicted for his conduct and is not currently working as a corporate executive in the securities industry fails to establish a sufficient basis to preclude the issuance of an injunction.”); Bonastia, 614 F.2d at 913 (no longer working in the securities industry is insufficient by itself to preclude the issuance of an injunction); Teo, 2011 U.S. Dist. LEXIS 103413, at *23–27, (issuing an injunction even though defendant has already pled guilty to insider trading); Blackwell 477 F.Supp.2d at 911 (imposing injunction following insider trading conviction, and finding that “[o]n several previous occasions, courts have awarded injunctive relief to the SEC after it has used collateral estoppel based on criminal convictions.”); Svaboda, 409 F. Supp. 2d at 343 (“Although [defendants] obviously cannot resume their scheme involving inside information misappropriated from NationsBank, the broad scope of the scheme, defendants’ familiarity with securities trading, and the lengths to which defendants went to conceal their activities all suggest that defendants could again violate the securities laws if presented with an opportunity. Defendants’ assurances that they will not do so do not compel a different result.”). Indeed, the Third Circuit has held that injunctions may be imposed based solely upon the degree of scienter and the repetitiveness of a violation. See Bonastia, 614 F.2d at 913 (“[T]he repetitiveness of the violations weighs heavily in favor of the imposition of an injunction. Furthermore, the district court specifically found that [defendant] acted with scienter of the violations. That scienter was clearly established underscores the propriety of injunctive relief in this case.”). Accordingly, given the egregiousness of Metro’s conduct – including his high degree of scienter and knowledge that his Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 20 of 24 PageID: 228 16 conduct was prohibited – and its lengthy duration, the SEC submits that injunctive relief on each of the SEC’s claims is appropriate here. III. THE SEC DOES NOT SEEK AN ORDER OF DISGORGEMENT OR PREJUDGMENT INTEREST Typically, Courts impose equitable remedies of disgorgement and prejudgment interest against defendants who have, like Metro, engaged in insider trading. See, e.g., Clay Capital, 2013 WL 5946989 at *6. While the law is clear that Metro may be ordered to disgorge all of the downstream trading profits he directly and proximately caused by tipping Tamayo,8 this Court has already entered an order of forfeiture in connection with Metro’s criminal sentence. See SOMF ¶ 4. Consequently, even though it is well settled that forfeiture and disgorgement are not identical remedies,9 the SEC does not seek an additional order of disgorgement and prejudgment interest in this action. Instead, for the reasons discussed below, the SEC asks the Court to impose a significant monetary penalty. IV. THE COURT SHOULD IMPOSE A SIGNIFICANT MONETARY PENALTY Equitable remedies such as injunction, disgorgement, and prejudgment interest merely restore the status quo. In contrast, civil monetary penalties serve to both punish individual defendants and to deter such conduct by potentially like-minded individuals. As such, under the circumstances, it is important that this Court send a message – both to Metro and to other individuals with similar access to confidential information – that this conduct is illegal and will result in significant punishment. Accordingly, the SEC asks that this Court impose a penalty on Metro of more than $2,000,000. 8 See SEC v. Warde, 151 F.3d 42, 49 (2d Cir. 1998) (in the determination of a disgorgement amount, a “tippee’s gains are attributable to the tipper, regardless whether benefit accrues to the tipper”). 9 In SEC v. Contorinis, the Second Circuit noted that “criminal forfeiture serves no remedial purpose, is designed to punish the offender, and cannot be imposed upon innocent owners. . . . Disgorgement, in contrast, is a civil remedy which serves the remedial purpose of preventing unjust enrichment.” 743 F.3d 296, 306 (2d Cir. 2014) (citations omitted). Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 21 of 24 PageID: 229 17 A. The Court’s Authority to Impose a Penalty in this Insider Trading Case. Under the Insider Trading Sanctions Act, 15 U.S.C. § 78u-1(a), any person who commits insider trading, whether by trading or by tipping, is subject to a civil penalty in an amount up to “three times the profit gained or loss avoided” from the illegal scheme. 15 U.S.C. § 78u-1(a)(2); see also SEC v. Gupta, 569 Fed. Appx. 45, 48-49 (2d Cir. 2014) (affirming imposition of treble penalties for insider trading and noting that a tippee’s gains are attributable to the tipper). Civil penalties under 15 U.S.C. § 78u-1(a) are based both on the tipper’s trading on inside information and his violation of the securities laws by “communicating such information” to a tippee. 15 U.S.C. § 78u- 1(a)(1) (emphasis added). The penalty amount thus may include “the profit gained . . . as a result of such unlawful . . . communication,” as well as the profit gained by a defendant as a result of his own trading. Id. at 78u-1(a)(2). In the instant case, as set forth above, the insider trading chain of which Metro was the critical first link earned more than $5.5 million in illegal profits, see SOMF ¶ 49, and Metro is potentially liable for all of this sum. See Warde, 151 F.3d 42, 49 (2d Cir. 1998) (a “tippee’s gains are attributable to the tipper, regardless whether benefit accrues to the tipper”). Consequently, the Court possesses the statutory authority to impose a civil monetary penalty of up to $16,500,000 in this case – three times the amount of illegal profits directly and proximately caused by Metro’s misconduct. See SEC v. Sekhri, No. 98 Civ. 2320, 2002 WL 31100823, *18-19 (S.D.N.Y. July 22, 2002) (imposing the maximum civil penalty against tipper based on tippee’s profits). B. The Facts Warrant a Significant Penalty. While the statute places an upper limit on the amount of a monetary penalty, as with injunctive relief, courts look to a number of factors to determine an appropriate amount of any civil penalty, including “(1) the egregiousness of the defendant’s violations; (2) the isolated or recurrent nature of the violations; (3) the degree of scienter; (4) the amount of illegal profits; and (5) the Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 22 of 24 PageID: 230 18 deterrent effect of the penalty in light of defendant’s net worth.” SEC v. Johnson, No. 02–5490, 2004 WL 5561799, *5 (D.N.J. Aug. 27, 2004). As discussed above, Metro’s conduct was egregious and extended over nearly five years. He participated in an organized and calculated conspiracy with Tamayo for the express purpose of evading detection, trading on surreptitiously-obtained information, and otherwise exploiting the information he stole from his employer. See SOMF ¶¶ 39-44. At the same time he was assuring his employer that he was not stealing information, Metro repeatedly betrayed the law firm’s trust. See SOMF ¶ 31. And he did so even though he knew or was reckless in not knowing that Tamayo was passing on the information to “the stockbroker” and others. See SOMF ¶¶ 42, 46. Metro misappropriated the information over and over and over – at least 13 times in all – and his conduct led to at least $5.5 million in illegal trading and untold reputational harm to his innocent employer. See SOMF ¶¶ 49-50. Insider trading in general also profoundly damages investor confidence in the fairness and integrity of the markets, resulting in the loss of investor participation. See O’Hagan, 521 U.S. at 658. And, Metro has refused to participate in discovery, so his net worth is simply not in the record. See SOMF ¶ 54. Consequently, we submit that all of these factors counsel in favor of a significant penalty. Moreover, penalties are designed not only to punish the wrongdoer, but also to serve as a “deterrent mechanism.” Sekhri, 2002 WL 31100823 at *18. Thus, the impact of this civil penalty on Metro is not the end of the inquiry. Even if Metro’s ability to currently pay the penalty was properly before the Court, and it is not because of his discovery nonfeasance, a significant civil penalty against him is important as it will deter future potential violators of the securities laws. This is especially true here where Metro exploited his position at a law firm that was entrusted with highly sensitive financial information. His disregard for his obligations under the law – by someone that Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 23 of 24 PageID: 231 19 attended law school, no less – should be appropriately punished so that others know that they will be held accountable for their actions should they consider the same path. Under these circumstances, we submit that the imposition of a penalty of more than $2,000,000 is necessary to effectuate Congress’s purpose of making insider trading a “money losing proposition” for Metro and for any others who would consider it. CONCLUSION For the reasons set forth above, the SEC respectfully requests that the Court grant its motion for summary judgment against Defendant Steven Metro and enter a final judgment against him, imposing a permanent injunction, and ordering his payment of a civil monetary penalty in an amount of more than $2,000,000. For the Court’s convenience, the SEC also respectfully submits a proposed final judgment. Dated: May 16, 2017 Respectfully submitted, /s/ Stephan J. Schlegelmilch_______________ Stephan J. Schlegelmilch Carolyn M. Welshhans U.S. SECURITIES AND EXCHANGE COMMISSION 100 F Street, N.E. Washington, DC 20549 (202) 551-4935 (Schlegelmilch) (202) 772-9292 (facsimile) SchlegelmilchS@SEC.gov Counsel for Plaintiff U.S. Securities and Exchange Commission Case 3:14-cv-01742-MAS-TJB Document 34-1 Filed 05/16/17 Page 24 of 24 PageID: 232 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY __________________________________________ : UNITED STATES SECURITIES AND : EXCHANGE COMMISSION : : Plaintiff, : : vs. : Case No. 3:14-cv-01742-MAS-TJB : VLADIMIR EYDELMAN, et al. : : Defendants. : _________________________________________ : [PROPOSED] FINAL JUDGMENT AS TO DEFENDANT STEVEN METRO WHEREAS, the Court has reviewed Plaintiff U.S. Securities and Exchange Commission’s (the “Commission”) Motion For Summary Judgment Against Steven Metro (“Defendant”), all supporting documents, and all opposition thereto, and based on the evidence and authorities presented therein, hereby finds and orders as follows: I. IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendant is permanently restrained and enjoined from violating, directly or indirectly, Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of any security: (a) to employ any device, scheme, or artifice to defraud; Case 3:14-cv-01742-MAS-TJB Document 34-2 Filed 05/16/17 Page 1 of 6 PageID: 233 2 (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a). II. IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is permanently restrained and enjoined from violating Section 17(a) of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)] in the offer or sale of any security by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly: (a) to employ any device, scheme, or artifice to defraud; (b) to obtain money or property by means of any untrue statement of a material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Case 3:14-cv-01742-MAS-TJB Document 34-2 Filed 05/16/17 Page 2 of 6 PageID: 234 3 Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a). III. IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is permanently restrained and enjoined from violating Section 14(e) of the Exchange Act [15 U.S.C. § 78n(e)] and Rule 14e-3 [17 C.F.R. § 240.14e-3] promulgated thereunder, in connection with any tender offer or request or invitation for tenders, from engaging in any fraudulent, deceptive, or manipulative act or practice, by: (a) purchasing or selling or causing to be purchased or sold the securities sought or to be sought in such tender offer, securities convertible into or exchangeable for any such securities or any option or right to obtain or dispose of any of the foregoing securities while in possession of material information relating to such tender offer that Defendant knows or has reason to know is nonpublic and knows or has reason to know has been acquired directly or indirectly from the offering person; the issuer of the securities sought or to be sought by such tender offer; or any officer, director, partner, employee or other person acting on behalf of the offering person or such issuer, unless within a reasonable time prior to any such purchase or sale such information and its source are publicly disclosed by press release or otherwise; or Case 3:14-cv-01742-MAS-TJB Document 34-2 Filed 05/16/17 Page 3 of 6 PageID: 235 4 (b) communicating material, nonpublic information relating to a tender offer, which Defendant knows or has reason to know is nonpublic and knows or has reason to know has been acquired directly or indirectly from the offering person; the issuer of the securities sought or to be sought by such tender offer; or any officer, director, partner, employee, advisor, or other person acting on behalf of the offering person of such issuer, to any person under circumstances in which it is reasonably foreseeable that such communication is likely to result in the purchase or sale of securities in the manner described in subparagraph (a) above, except that this paragraph shall not apply to a communication made in good faith (i) to the officers, directors, partners or employees of the offering person, to its advisors or to other persons, involved in the planning, financing, preparation or execution of such tender offer; (ii) to the issuer whose securities are sought or to be sought by such tender offer, to its officers, directors, partners, employees or advisors or to other persons involved in the planning, financing, preparation or execution of the activities of the issuer with respect to such tender offer; or (iii) to any person pursuant to a requirement of any statute or rule or regulation promulgated thereunder. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who Case 3:14-cv-01742-MAS-TJB Document 34-2 Filed 05/16/17 Page 4 of 6 PageID: 236 5 receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a). IV. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant shall pay a civil penalty in the amount of $_____________ to the U.S. Securities and Exchange Commission pursuant to 15 U.S.C. § 78u-1(a). Defendant shall make this payment within 14 days after entry of this Final Judgment. Defendant may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly from a bank account via Pay.gov through the SEC website at http://www.sec.gov/about/offices/ofm.htm. Defendant may also pay by certified check, bank cashier’s check, or United States postal money order payable to the U.S. Securities and Exchange Commission, which shall be delivered or mailed to Enterprise Services Center Accounts Receivable Branch 6500 South MacArthur Boulevard Oklahoma City, OK 73169 and shall be accompanied by a letter identifying the case title, civil action number, and name of this Court; Steven Metro as a defendant in this action; and specifying that payment is made pursuant to this Final Judgment. Defendant shall simultaneously transmit photocopies of evidence of payment and case identifying information to the Commission’s counsel in this action. By making this payment, Defendant relinquishes all legal and equitable right, title, and interest in such funds and no part of Case 3:14-cv-01742-MAS-TJB Document 34-2 Filed 05/16/17 Page 5 of 6 PageID: 237 6 the funds shall be returned to Defendant. The Commission shall send the funds paid pursuant to this Final Judgment to the United States Treasury. Defendant shall pay post-judgment interest on any delinquent amounts pursuant to 28 USC § 1961. V. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment. Dated: ______________, _____ ____________________________________ UNITED STATES DISTRICT JUDGE Case 3:14-cv-01742-MAS-TJB Document 34-2 Filed 05/16/17 Page 6 of 6 PageID: 238