U.S. Sec. & Exch. Comm'n v. Ahmed

• Decision Date: 06 September 2018
• Docket Number: Civil No. 3:15cv675 (JBA)
• Citation: U.S. Sec. & Exch. Comm'n v. Ahmed, 343 F.Supp.3d 16 (D. Conn. 2018)
• Court: U.S. District Court — District of Connecticut
• Parties: UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Iftikar AHMED, Defendant, and Iftikar Ali Ahmed Sole Prop; I-Cubed Domains, LLC; Shalini Ahmed; Shalini Ahmed 2014 Grantor Retained Annunity Trust; Diya Holdings LLC ; Diya Real Holdings, LLC; I.I. 1, a Minor Child, by and Through His Next Friends Iftikar and Shalini Ahmed, His Parents; I.I. 2, a Minor Child, by and Through His Next Friends Iftikar and Shalini Ahmed, His Parents; and I.I. 3, a Minor Child, by and Through His Next Friends Iftikar and Shalini Ahmed, His Parents, Relief Defendants.

343 F.Supp.3d 16

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Iftikar AHMED, Defendant,andIftikar Ali Ahmed Sole Prop; I-Cubed Domains, LLC; Shalini Ahmed; Shalini Ahmed 2014 Grantor Retained Annunity Trust; Diya Holdings LLC ; Diya Real Holdings, LLC; I.I. 1, a Minor Child, by and Through His Next Friends Iftikar and Shalini Ahmed, His Parents; I.I. 2, a Minor Child, by and Through His Next Friends Iftikar and Shalini Ahmed, His Parents; and I.I. 3, a Minor Child, by and Through His Next Friends Iftikar and Shalini Ahmed, His Parents, ReliefDefendants.

Civil No. 3:15cv675 (JBA)

United States District Court, D. Connecticut.

Signed September 6, 2018

John B. Hughes, U.S. Attorney's Office, New Haven, CT, Nicholas Peter Heinke, Pro Hac Vice, Jeffrey E. Oraker, Mark Lander Williams, Terry R. Miller, U.S. Securities and Exchange Commission, Denver, CO, for Plaintiff.

David B. Deitch, Pro Hac Vice, Harris, St. Laurent & Chaudhry LLP, Reston, VA, Alexander Sakin, Pro Hac Vice, Jonathan Harris, Pro Hac Vice, L. Reid Skibell, Pro Hac Vice, Priya Chaudhry, Pro Hac Vice, Steven Gabriel Hayes-Williams, Pro Hac Vice, Joseph Gallagher, Harris, St. Laurent & Chaudhry LLP, New York, NY, Kristen Luise Zaehringer, Paul E. Knag, Murtha Cullina, LLP, Stamford, CT,

Iftikar Ahmed, Kolkatta, West Bengal, pro se.

Iftikar Ali Ahmed Sole Prop, pro se.

RULING ON PLAINTIFF'S MOTION FOR REMEDIES AND JUDGMENT

Janet Bond Arterton, United States District JudgeThis Court found [Doc. # 835] on summary judgment that DefendantIftikar Ahmed was liable for violations of Section 10(b) of the Securities Exchange Act of 1934("Exchange Act") and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933("Securities Act"), and Section 206 of the Investment Advisers Act("Advisers Act").SeeSEC v. Ahmed , 308 F.Supp.3d 628, 636–37(D. Conn.2018)(hereinafter " Ahmed II ").Plaintiff, the United States Securities and Exchange Commission("SEC") now moves [Doc. # 886] for Remedies and Judgment against Defendant, seeking: (1) a permanent injunction; (2) disgorgement of Defendant's fraudulent proceeds in the amount of $43,920,639; (3) disgorgement of prejudgment interest on those proceeds in the amount of $1,520,953 along with interest earned on all frozen assets during the pendency of freeze; (4) civil penalties in the amount of $43,920,639; (5) an Order specifically finding that the assets listed on the Asset Schedule (Ex. 1[Doc. # 888-1] to Pl.'s Mem. Supp. Mot. for Judgment) belong to Defendant and can be used to satisfy a judgment against him; (6) the appointment of a receiver; (7) the establishment of a Fair Fund; and (8) any other relief that the Court may deem appropriate.(Pl.'s Mem. Supp. Mot. for Judgment[Doc. # 888]at 2.)

For the following reasons, the Court grants the SEC's Motion, with modification.

I.Background

The Court assumes the parties' familiarity with the facts and procedural history of this case.A detailed discussion of the facts underlying Defendant's violations can be found in the Court's Ruling granting summary judgment on the issue of Defendant's liability.SeeAhmed II , 308 F.Supp.3d 628.A brief summary of relevant facts and findings relating to Relief Defendants' claims of ownership over assets listed in the Asset Schedule follows.

In opposition to the SEC's request for a preliminary injunction freezing assets, Relief DefendantShalini Ahmed and her children made a claim to only three assets: (1) $7.5 million in proceeds from the Company C transaction that was held by I-Cubed and placed into the 2014 Grantor Retained Annuity Trust (the "GRAT"); (2) income earned from a Park Avenue condominium held in the name of DIYA that was purchased for approximately $9.5 million ("Unit 12A"); and (3) any income earned from a second Park Avenue condominium held in the name of DIYA Real that was purchased for approximately $8.7 million ("Unit 12F").(See, e.g. , [Docs. ## 69, 96].)The Court rejected Ms. Ahmed's request, finding that she was a nominal owner for each requested asset and thus her ownership claims were not credible.SeeSEC v. Ahmed , 123 F.Supp.3d 301, 313(D. Conn.2015)(hereinafter " Ahmed I "), aff'd sub nom.Sec. &Exch. Comm'n v. I-Cubed Domains, LLC , 664 F. App'x 53(2d Cir.2016).However, the Court agreed to "entertain any application to release assets identifiable as [Ms. Ahmed's], and not tainted."Sec. &Exch. Comm'n v. I-Cubed Domains, LLC , 664 F. App'x 53, 57(2d Cir.2016)(internal quotations omitted)

Relief Defendants chose to take an interlocutory appeal of the Asset Freeze Order, arguing, inter alia , that the asset freeze was overbroad as to assets in Ms. Ahmed's name that the Court had not individually analyzed.SeeI-Cubed Domains, LLC , 664 F. App'x at 55.The Second Circuit deemed the argument "merifless" and instructed that, even with assets held in their name, Relief Defendants needed to first "identify any improperly frozen assets" and apply for their release before the SEC would be "required to carry its burden of demonstrating that any such identified assets are either ill-gotten gains to which Relief Defendants do not have a legitimate claim or that Iftikar in fact owns the assets in question."Id. at 57(citingSmith v. SEC , 653 F.3d 121, 128(2d Cir.2011) )."If Relief Defendants cannot prove that any frozen assets legitimately belong to them, then necessarily none of their assets are being improperly frozen to satisfy the civil penalties alleged to apply to Iftikar's conduct."Id. at 57 n.3.Relief Defendants subsequently hired an expert "to counter the Commission's argument that the Relief Defendants are mere nominees."( [Doc. # 340]at 7.)

Since the Second Circuit's ruling, Ms. Ahmed has identified only two allegedly improperly frozen assets: 1) $250,000.00 in rental proceeds from Unit 12A that was previously placed in Fidelity x7540; and (2) nine 1-kilogram gold bars discovered in jointly-owned safety deposit boxes.(See[Doc. # 442].)The Court rejected these requests, finding that neither asset belonged to her: "Ms. Ahmed is not entitled to proceeds of Unit 12A because she was only a nominal owner of the condominium" and "[e]ven Relief Defendants' Motion does not contain an explicit allegation of Ms. Ahmed's ownership of the Gold Bars, and the SEC has pointed to testimony which demonstrates that Ms. Ahmed had no knowledge of the existence of the bars."( [Doc. # 658]at 3-5.)

Following the Court's Summary Judgment Ruling on Liability, Relief Defendants were ordered to—and agreed to—"provide a list identifying all assets they claim belong to them, and the reasons why they claim such ownership."( [Doc. # 842]at 3.)On April 27, 2018, Relief Defendants filed the required list.(See Relief Defendant's Asset List [Doc. # 862] ).Despite having made claims to only five frozen assets during the preceding three years of litigation (all of which were rejected), Ms. Ahmed and her young children now claim to own more than $85 million in frozen assets.Id.Neither Relief Defendants' Asset List, nor any other submissions to the Court, explain how Relief Defendants controlled the assets or how they were acquired.Nor do they provide any argument that goods or services were provided in exchange for the assets, or any expert analysis demonstrating the SEC's nominee allegations are inaccurate.

II.Discussion

A.Plaintiff's Motion is Procedurally Sound

Defendants fault the SEC for filing a Motion for Judgment instead of a motion for summary judgment on damages.¹The SEC responds that summary judgment is not appropriate given that it is not seeking damages, but rather is requesting that the Court enter judgment against Defendant awarding certain equitable remedies, which cannot be decided at a trial.See, e.g.,Broadnax v. City of New Haven , 415 F.3d 265, 271(2d Cir.2005).Relief Defendants cry foul, claiming entitlement to a jury on the question of whether specific assets belong to them, or are in fact owned by Mr. Ahmed.

Relief Defendants provide no convincing authority supporting their position that ownership of the assets in this context is a question of fact that must be determined by a jury.They attempt to characterize the SEC's theory of recovery against Relief Defendants as one of fraudulent conveyance, a question of common law rather than equity, in order to show entitlement to a jury trial.However, their sole cited case involves a private lawsuit in which the government intervened to enforce tax liens against two defendants by proceeding against a third defendant under the theory that it was a nominee for the first two.SeeIantosca v. Benistar Admin. Svcs., Inc. , 843 F.Supp.2d 148, 153-54(D. Mass.2012).The court reasoned that "suits seeking ... to compel the defendant to pay a sum of money to the plaintiff are suits for money damages ... [a]nd money damages are, of course, the classic form of legal relief," therefore finding that the defendants were entitled to a jury trial with respect to the government's nominee claim.Id. at 153.

Iantosca , which unlike here was a private lawsuit, is not persuasive in light of the overwhelming case law cited by the SEC in which district courts have used their equitable power in the context of securities enforcement actions to order the turnover of assets nominally held by third parties.SeeSEC v. Softpoint, Inc. , No. 95-CV-2951, 2012 WL 1681167 at *3(S.D.N.Y.May 9, 2012)(where the defendant could use corporation's money at will and "attributed the assets to [the corporation] in order to retain their use while fraudulently protecting them from creditors[,]"the court found that the corporation's assets belonged to the defendant);SEC v. Zubkis , No. 97 Civ. 8086 (JGK), 2005 WL 1560489 at *4(S.D.N.Y.June 30, 2005)("The Court may use [its] broad equitable power to order the turnover of assets nominally held by third parties where the third party lacks a legitimate claim to the assets.");SEC v. Martino , 255 F.Supp.2d...