Sec. & Exch. Comm'n v. Ahmed

• Decision Date: 12 August 2015
• Docket Number: Civil No. 3:15cv675 (JBA).
• Citation: Sec. & Exch. Comm'n v. Ahmed, 123 F.Supp.3d 301 (D. Conn. 2015)
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Iftikar AHMED, et al., Defendants.
• Court: U.S. District Court — District of Connecticut

123 F.Supp.3d 301

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Iftikar AHMED, et al., Defendants.

Civil No. 3:15cv675 (JBA).

United States District Court, D. Connecticut.

Signed Aug. 12, 2015.

John B. Hughes, U.S. Attorney's Office, New Haven, CT, Nicholas Peter Heinke, Mark Lander Williams, U.S. Securities and Exchange Commission, Denver, CO, for Plaintiff.

Dylan P. Kletter, Brown Rudnick LLP, Hartford, CT, Alexander Sakin, David B. Deitch, Jonathan Harris, L. Reid Skibell, Priya Chaudhry, Harris, O'Brien, St. Laurent & Chaudhry, LLP, New York, NY, Kristen Luise Zaehringer, Paul E. Knag, Murtha Cullina, LLP, Stamford, CT, for Defendants.

Iftikar Ali Ahmed Sole Prop, pro se.

RULING AND ORDER GRANTING PRELIMINARY INTUNCTION

JANET BOND ARTERTON, District Judge.

Plaintiff the United States Securities and Exchange Commission(the "Commission" or "SEC") moves [Doc. # 29] for a preliminary injunction continuing the temporary restraining order [Doc. # 241] freezing assets of Defendant and Relief Defendants("Asset Freeze Order").On July 23 and 30, 2015, the Court conducted a hearing on the Commission's motion for preliminary injunction, during which it heard arguments of counsel and received evidence.For the reasons that follow, the Commission's motion is granted.

I.Background

A.Facts Alleged

As set forth in the record considered by the Court in issuing the Asset Freeze Order, Defendant Ahmed is alleged to have engaged in a decade-long fraud that resulted in the misappropriation of tens of millions of dollars from his former employer Oak Management Corporation("Oak") and its investors.Among other tactics, Defendant is alleged to have misrepresented the price of an investment he advised Oak to make; fraudulently used invoices purportedly related to Oak's purchase or sale of a company's shares; and engaged in self-dealing by misrepresenting or concealing his personal stake as the counterparty in various transactions that he entered into on behalf of Oak.In each case, Mr. Ahmed allegedly funneled the illicit proceeds into accounts at Bank of America that he claimed belonged to parties to the deals, but which in fact he opened and secretly controlled.His ill-gotten gains are alleged to have totaled $65 million.(See Am. Compl.[Doc. # 33]; Declarations of Grace Ames("First Ames Declaration"[Doc. # 4] and "Second Ames Declaration [Doc. # 31]"); Am. Mot. for Prelim.Inj.)

B.Procedural Background

On May 6, 2015, the SEC filed [Doc. # 2] an emergency motion for an ex parte temporary restraining order freezing assets and for a preliminary injunction continuing that asset freeze for the pendency of this litigation.On May 7, 2015, after conducting an ex parte telephonic hearing on the record, the Court issued [Doc. # 9] a temporary restraining order freezing assets, providing for other ancillary relief, and setting this matter for a preliminary injunction hearing.On May 18, 2015, the Commission and Mr. Ahmed entered into a stipulation [Doc. # 21], approved [Doc. # 22] by the Court, providing that all assets held by him or under his direct or indirect control, whether held in his name or for his direct or indirect beneficial interest, would remain frozen until the Court's ruling on the Commission's Motion for a Preliminary Injunction.

Mr. Ahmed is believed to have fled the United States around the same time that he entered into this stipulation.¹On June 12, 2015, the Commission filed its Amended Complaint and Motion for a Preliminary Injunction based on newly-alleged misconduct by DefendantIftikar Ahmed.In its Amended Complaint, the Commission also named several additional relief defendants, including Defendant's wife, Shalini Ahmed.The Court subsequently ordered [Doc. # 34] expedited discovery and set this matter for a preliminary injunction hearing, which took place on July 23 and 30, 2015 with the SEC, Mrs. Ahmed, and certain other relief defendants participating.²

On August 3, 2015, Mr. and Mrs. Ahmed were charged in a criminal case—the second for Mr. Ahmed—with conspiracy to commit money laundering in violation of 18 U.S.C. §§ 1956(h)and1957 related to the alleged fraud in this case.SeeCase No. 15–mj2161–MBB(D.Mass.).

C.Preliminary Injunction Hearing

The SEC seeks to freeze assets up to $118 million to account for approximately $65 million in illicit profits to be disgorged plus prejudgment interest ($9.3 million) and civil penalties ($44 million).The SEC has located and claimed to be subject to the Court's Asset Freeze Order approximately $47 million dollars in liquid assets, real estate worth approximately $20 million, and "certain other non-liquid assets that are difficult to value."(SEC Post Hr'g Br. [Doc. # 98]at 7 & n. 4.)

Of the nineteen transactions alleged to be fraudulent in the Commission's Amended Complaint, Relief Defendants challenged only one at the preliminary injunction hearing: the October 2014 sale of "Company C" shares from I–Cubed to Oak for $7.5 million.Additionally, Relief Defendants argued that additional unfrozen funds in Mr. Ahmed's "carried interest account" at Oak are available to satisfy any judgment against Defendant and that certain assets frozen should be unfrozen.

As to the Company C transaction, the evidence presented at the hearing largely confirmed the record presented to the Court when it issued the temporary restraining order.In October 2013, based on Mr. Ahmed's recommendation, Oak invested $25 million to purchase shares in Company C.Before consummating the investment, Grace Ames, Oak's Chief Operating Officer, asked Mr. Ahmed whether he"invest[ed] in [Company C] prior to Oak's contemplated investment" and Mr. Ahmed responded "I have NO personal investment or any direct beneficial interest of investment in [Company C]."(HearingEx. 2 & First AmesDecl. Ex. 18.)Mr. Ahmed did not disclose that a year earlier, in October 2012, he had formed an entity called I–Cubed and shortly thereafter purchased shares in Company C through I–Cubed.(HearingEx. 5;First AmesDecl. ¶ 29.b & Ex. 21.)In May 2013, shortly before Oak made its initial investment in Company C, Mr. Ahmed transferred his interest in I–Cubed to his wife.(First AmesDecl. ¶ 29.d.)

In October 2014, Mr. Ahmed recommended that Oak make an additional $7.5 million investment in Company C shares held by I–Cubed, which Mr. Ahmed described as a "family office," but Mr. Ahmed did not disclose that he had transferred his interest in I–Cubed to Mrs. Ahmed.(Id.¶ 26.)Mr. Ahmed signed a Stock Purchase Agreement on behalf of Oak purchasing the $7.5 million of additional shares from I–Cubed.(Id.Ex. 19.)Richard N. Kimball, a Boston attorney, signed on behalf of I–Cubed.(Id. )However, Mr. Kimball had resigned as I–Cubed's initial manager one month prior.(Id.Ex. 22.)The SEC represents that Mr. Kimball has confirmed that his signature was forged in the Stock Purchase Agreement.(SEC Post Hr'g Br.at 12 & n. 7.)Mr. Ahmed then directed Oak to wire the $7.5 million payment to a Bank of America account held solely in his name, which he had opened just days prior.(HearingEx. 4 & Ames First DeckEx. 20(wiring instructions);HearingEx. 6 & Oraker Deck [Doc. # 68]Ex. 1 at SEC–BOA–00001189–1192(account opening documents).)Mr. Ahmed then transferred this $7.5 million into the names of certain Relief Defendants by writing checks from the I–Cubed Bank of America account to Mrs. Ahmed and the Shalini Ahmed GRAT.³(OrakerDecl. ¶¶ 23, 32 & Exs. 15, 17, 19.)

Mr. Ahmed's private email communications reveal that he had significant concerns about the viability of Company C days before executing the October 2014 purchase on Oak's behalf, emailing another investor about the "flat to down year" Company C was having, saying it was a "non-starter" for Oak to invest additional money in Company C, and stating that he would get his "a* * handed to [him]" if he approached Oak about such an investment.(Hearing Ex. K.)Mr. Ahmed did not disclose these concerns to Oak at the time he advised Oak to buy Company C shares from I–Cubed (Hearing Tr.at 283), nor did he disclose that the same shares Oak purchased for $7.5 million had been valued at only $876,193.72 two months earlier.(Hearing Ex. 8 at Shalini Ahmed—00000881 & Hearing Tr.at 304–05.)

II.Discussion

The Securities Act of 1933 and the Securities and Exchange Act of 1934 pursuant to which the SEC has brought this action, authorize it to bring civil actions "to enjoin [unlawful] acts or practices, and upon a proper showing, a permanent or temporary injunction or restraining order shall be granted without bond."15 U.S.C. § 77t(b);15 U.S.C. § 78u(d)(1)(same).Injunctions sought by the SEC "do not require a showing of irreparable harm or the unavailability of remedies at law," but rather "the SEC need only make ‘a substantial showing of likelihood of success as to both a current violation and the risk of repetition.’ "Smith v. S.E.C.,653 F.3d 121, 127–28(2d Cir.2011)(quotingSEC v. Cavanagh,155 F.3d 129, 132(2d Cir.1998) ).A less stringent standard applies when the SEC seeks to freeze assets, requiring it only to "show either a likelihood of success on the merits, or that an inference can be drawn that the party has violated the federal securities laws."Id.(internal quotation marks omitted).This is so because an "asset freeze is a provisional remedy" that serves to preserve the status quo and "to ensure that, in the event the SEC obtains a judgment, money will be available to satisfy that judgment."S.E.C. v. Byers,No. 08 CIV.7104 (DC), 2009 WL 33434, at *2(S.D.N.Y.Jan. 7, 2009).

To show a violation of Section 10(b) of the Exchange ActandRule 10b–5 thereunder, the SEC must show that Defendant"(1) made a material misrepresentation or a material omission as to which he had a duty to speak, or used a fraudulent device; (2) with scienter; (3) in connection with the purchase or sale of securities."S.E.C. v. Pentagon Capital Mgmt. PLC,725 F.3d 279, 285(2d Cir.2013)(quo...