Sec. & Exch. Comm'n v. Levin

• Decision Date: 23 February 2017
• Docket Number: No. 15-14375,15-14375
• Citation: 849 F.3d 995
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff–Appellee, v. George G. LEVIN, Defendant–Appellant, Frank Preve, Defendant.
• Court: U.S. Court of Appeals — Eleventh Circuit

849 F.3d 995

SECURITIES AND EXCHANGE COMMISSION, Plaintiff–Appellee,

v. George G. LEVIN, Defendant–Appellant,Frank Preve, Defendant.

No. 15-14375

United States Court of Appeals, Eleventh Circuit.

February 23, 2017

Jeffrey Alan Berger, Emily T.P. Rosen, U.S. Securities & Exchange Commission, Washington, DC, Amie Berlin, David Corey Lawson, U.S. Securities & Exchange Commission, Miami, FL, for Plaintiff–Appellee.

Michael Anthony Pineiro, Daniel L. Rashbaum, Marcus Neiman & Rashbaum, LLP, Miami, FL, Kenneth B. Robinson, Rice Pugatch Robinson & Schiller, PA, Fort Lauderdale, FL, for Defendant–Appellant.

Robert C. Josefsberg, Ramon A. Rasco, SunTrust International Center, Miami, FL, for Frank Preve.

Before MARCUS and DUBINA, Circuit Judges, and GOLDBERG,^* Judge.

DUBINA, Circuit Judge:

Defendant–Appellant George G. Levin ("Levin") appeals the district court's judgment in favor of the Plaintiff–Appellee Securities and Exchange Commission ("SEC") on its action charging Levin with securities violations. The action centers on Levin's sales of securities in connection with a large Ponzi scheme. The SEC brought suit against Levin alleging violations of the registration provisions of the Securities Act and fraud in the sale of securities in violation of the Securities and Exchange Act ("Acts"). Levin asserted affirmative defenses that the sales were exempt from the registration provisions. The district court awarded summary judgment to the SEC, finding no merit to Levin's affirmative defenses, and a jury found Levin liable on the fraud claims. Levin appeals the district court's grant of summary judgment to the SEC on Count I, the failure to register securities pursuant to Section 5 of the Securities Act, and he also challenges claimed errors that occurred during trial. Based on our review of the record, reading the parties' briefs, and having the benefit of oral argument, we affirm in part, and reverse in part; specifically, we reverse the grant of summary judgment on Count I and remand this case for further proceedings consistent with this opinion.

I. BACKGROUND

A. Facts

The controversy in this case arises from the operation and eventual collapse of Scott Rothstein's ("Rothstein") Ponzi scheme. Rothstein used his law firm, Rothstein, Rosenfeldt and Adler P.A. ("law firm"), to operate his scheme by soliciting investors to purchase purported confidential settlement agreements supposedly reached in sexual harassment or whistleblower lawsuits. No such agreements existed, and the investors were paid with funds from other investors. The scheme collapsed in October 2009, and Rothstein pled guilty to a five-count information charging one count each of racketeering conspiracy, conspiracy to commit money laundering, conspiracy to commit mail and wire fraud, and two counts of wire fraud.

Levin's involvement in the Ponzi scheme began in 2007 when he invested in the purported settlements. Initially, Levin used his personal funds to invest in the scheme, but he soon began using funds from his dormant legal entity, Banyon 1030–32 ("Banyon"). Frank Preve ("Preve") was the daily operations manager of Banyon, and he handled the paperwork for the investments. Rothstein would email Banyon details regarding the bogus settlements that Banyon could purchase, and Levin determined the parameters of the settlements that Banyon would purchase. In order to purchase more of the purported settlements, Banyon offered investors promissory notes, and Banyon used funds from the notes to purchase additional settlements. Banyon repaid the notes with the returns from those settlements. Levin personally guaranteed the notes. Levin and Preve initially marketed the notes to their friends and family but soon began to solicit other potential investors. Ultimately, Banyon issued notes to approximately 90 investors, for an approximate total amount of $50 to $58 million. The SEC did not receive a registration statement with respect to these promissory notes.

To obtain additional funding, Banyon established lines of credit with New York-based hedge funds to finance settlement purchases. These hedge funds set up separate accounts with Rothstein, and the hedge fund managers independently decided whether they would fund certain settlement purchases. Banyon also utilized the Banyon Income Fund, a limited partnership with Banyon as the general manager, to raise approximately $100 million from an estimated 83 investors to purchase purported settlement agreements. The law firm established a dedicated trust account for the Banyon Income Fund at the TD Bank ("TD Bank"). Eventually, the scheme collapsed.

B. Procedural History

The SEC filed suit against Levin in May 2012, and later amended its complaint.¹ In the amended complaint, the SEC alleged that Levin sold unregistered securities in violation of Sections 5(a) and 5(c) of the Securities Act, and that Levin engaged in fraud in violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b–5. In his answer, Levin asserted that the Banyon promissory notes were exempt from registration under Section 4(a)(2) either because they did not involve any public offering as demonstrated by compliance with Rule 506(b) of Regulation D, or because they were protected by the safe harbor provision of Rule 508 of Regulation D. Levin also asserted that he did not profit from any of the purported conduct and, therefore, disgorgement was not a proper remedy.

The parties both moved for summary judgment, and the district court denied Levin's motion in full and denied portions of the SEC's motion as well. The district court, however, did partially grant the SEC's motion, finding that the Banyon notes were not exempt under Rule 506, but determining that there was a triable issue of fact as to whether the notes were exempt under the safe harbor provision of Rule 508. The SEC filed a motion for reconsideration as to whether the notes were exempt, and the district court granted the motion, finding that the safe harbor provision in Rule 508 did not protect defendants against enforcement actions brought by the SEC.

The district court began a trial on the securities fraud claim without Levin's presence because, that morning, Levin's counsel notified the court that Levin had been admitted to the hospital in Panama where he had traveled for business. Levin was unable to return by the start of the trial, and his counsel moved for a one-week continuance. The SEC objected, mainly on fiscal grounds, but also because a continuance would create problems with witness availability. The district court denied the motion. Levin was absent for the first two days of trial, which included jury selection, opening statements, the SEC's presentation of its first witness, and the beginning testimony of the SEC's second witness.

At the end of the trial, the jury found Levin liable on all counts. The SEC moved for a total disgorgement award of $106 million. Levin responded that any disgorgement should be offset by payments made to investors from Banyon and the Banyon bankruptcy trustee. The district court determined that a disgorgement award of $40.1 million was appropriate because it reflected the amounts actually received by Levin and his family members as a result of Levin's wrongdoing. The district court entered final judgment against Levin on July 31, 2015, and Levin timely filed a notice of appeal.

II. ISSUES

1. Whether the district court erred in granting summary judgment to the SEC because it found the Banyon note offerings were not eligible for a Regulation D exemption from the registration requirements of Section 5 of the Securities Act.

2. Whether the district court abused its discretion in denying Levin's motion for a continuance on the basis that he was unable to attend the first two days of trial due to an unexpected hospitalization.

3. Whether the district court abused its discretion in including certain gains by Levin's family members in its $40.1 million disgorgement order, or in failing to reduce that disgorgement based on certain prior and future payments by Banyon's bankruptcy trustee.

4. Whether the district court plainly erred in questioning Levin and another witness during trial.

III. STANDARDS OF REVIEW

We review de novo a district court's order on summary judgment. See Mais v. Gulf Coast Collection Bureau, Inc. , 768 F.3d 1110, 1119 (11th Cir. 2014). "In so doing, we draw all inferences and review all evidence in the light most favorable to the non-moving party." Id.

We review for abuse of discretion the district court's ruling on a motion for continuance. SeeRomero v. Drummond Co. Inc. , 552 F.3d 1303, 1319–20 (11th Cir. 2008). The denial of a request for continuance does not constitute an abuse of discretion unless it is arbitrary and unreasonable and severely prejudices the moving party. See Rink v. Cheminova, Inc. , 400 F.3d 1286, 1296 (11th Cir. 2005).

We review for abuse of discretion a district court's calculation of disgorgement. See SEC v. Monterosso , 756 F.3d 1326, 1337 (11th Cir. 2014).

We also review for abuse of discretion a district court's questioning of witnesses under Federal Rule of Evidence 614. See generally United States v. Wright , 392 F.3d 1269, 1274 (11th Cir. 2004). When a party fails to object at trial to the district court's conduct, however, we review for plain error only. See SEC v. Big Apple Consulting USA, Inc. , 783 F.3d 786, 812 (11th Cir. 2015).

IV. ANALYSIS

A. Summary Judgment

1. Statutory and Regulatory Framework

Section 5 of the Securities Act prohibits the use of any means of interstate commerce or the mails to offer to sell or offer to buy any security without having first filed a registration statement with the SEC as to such security. 15 U.S.C. § 77e(a), (c) (2012). To establish a prima facie case for a Section 5 violation, the SEC must prove three elements: "(1) no registration statement was in effect as to the securities, (2) the defendant sold or offered to sell these securities, and (3)...