Sec. & Exch. Comm'n v. Cooper

• Decision Date: 05 November 2015
• Docket Number: Civil No. 13–5781 (RMB/AMD)
• Citation: 142 F.Supp.3d 302
• Parties: Securities and Exchange Commission, Plaintiff, v. Brett A. Cooper, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

142 F.Supp.3d 302

Securities and Exchange Commission, Plaintiff,

v.Brett A. Cooper, et al., Defendants.

Civil No. 13–5781 (RMB/AMD)

United States District Court, D. New Jersey, Camden Vicinage .

Signed November 5, 2015

Elizabeth Ann Pascal, U.S. Department of Justice, Paul A. Blaine, Office of the United States Attorney, Camden, NJ, Melanie Anne MacLean, Stephen Thomas Kaiser, Securities & Exchange Commission, Washington, DC, for plaintiff.

Brett A. Cooper, Cinnaminson, NJ, pro se.

OPINION

RENÉE MARIE BUMB

, UNITED STATES DISTRICT JUDGE

Plaintiff, the Securities and Exchange Commission (the "SEC" or "Commission") has moved for summary judgment under Rule 56 of the Federal Rules of Civil Procedure

against defendant Brett A. Cooper ("Cooper"). The SEC has also moved pursuant to Rule 55(b)(2) for default judgment against Cooper's purported alter egos Global Funding Systems LLC, ("Global Funding"), Dream Holdings, LLC ("Dream Holdings"), REOP Group Inc. ("REOP"), Fortitude Investing, LLC ("Fortitude"), and Peninsula Waterfront Development, L.P. ("Peninsula") (Global Funding, Dream Holdings, Fortitude and Peninsula are collectively, "the Cooper Companies") (Cooper Companies, REOP and Cooper are collectively, the "Defendants").¹

I. BACKGROUND

In its Complaint, the SEC alleges that Cooper, the Cooper Companies, and REOP employed fraudulent schemes and deceptive acts, and made untrue statements of material fact or omitted material facts, in connection with the purchase or sale of securities in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a)

, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5. Further, the Complaint alleges that Cooper aided and abetted the Cooper Companies' violation of these statutes and the rule. Complaint ("Compl.") ¶¶ 27-37. The Complaint also alleges that Cooper induced, or attempted to induce, the purchase or sale of a security without being registered with the Commission as a broker or dealer, or an associated person of a registered broker or dealer, in violation of Section 15(a) of the Exchange Act, 15 U.S.C. § 78o(a). Compl. ¶¶ 38-40.

In general, the Complaint alleges and the evidence adduced by the SEC establishes that from November 2008 through April 2012, the Defendants engaged in three schemes that defrauded at least 11 investors out of approximately $2.1 million. The first two schemes involved fictitious "Prime Bank" instruments and trading programs that promised extraordinary returns in a matter of weeks. The third involved a "finder's fee" scheme where defendants Cooper and REOP provided fraudulent documents to investors and collected $50,000 that they did not earn. Compl. ¶¶ 1-4; SOF ¶¶ 33, 120-23.

Cooper has never been licensed to sell securities or registered with the Commission in any capacity. SOF ¶ 7. He is the sole Managing Member of Global Funding, Dream Holdings and PWD Philadelphia Unit, LLC, the general partner of Peninsula. SOF ¶¶ 8-9, 11, 17-18. He is the founder and sole Principal of Fortitude and the sole Director of REOP. SOF ¶¶ 10, 12, 17. Cooper had ultimate authority over statements made by REOP and the Cooper Companies, and was the only person to represent these entities in connection with the "Prime Bank" and "Finder's Fee" transactions described in the Complaint. SOF ¶¶ 13-14, 17-18.

During the relevant period, neither REOP nor the Companies maintained any formalities of incorporation. They did not hold board or executive meetings, nor did they have any employees, directors, officers or principals besides Cooper. SOF ¶¶ 8-12, 17-18. The addresses Cooper used to register REOP and the Cooper Companies were either his personal addresses or temporary office rental locations. SOF ¶¶ 8-12, 17-18. REOP and the Cooper Companies had no operations—Cooper's sole income during the relevant period was from the fictitious transactions alleged in the Complaint. SOF ¶¶ 17-18, 35-36, 117. The funds in these entities' accounts were commingled with each other's and with Cooper's personal funds, and Cooper routinely used these entities' funds for personal items like gambling trips to Vegas and the Bahamas, cruises, hotels, expensive cars, designer clothes, and retail expenses. SOF ¶¶ 17-18, 35, 42, 45-46, 53, 65, 67, 71, 74, 84, 95-96, 107-08, 117-19, 122-23.

A. Schemes Alleged by the SEC

The evidence put forward by the SEC, as summarized below, demonstrates that Cooper carried out a variety of financial schemes.

i. Classic Prime Bank Transactions Scheme

During 2008 through 2011, Cooper, through the Cooper Companies, lured investors into fictitious "Prime Bank" or "High-Yield" investment contracts with the promise of extraordinary returns on their investments in a matter of weeks, with little to no risk. SOF ¶¶ 32-33, 35-38, 47-48, 57-59, 68, 74, 77-78, 81, 89, 99, 108. The purported investments involved the purchase of bank instruments, including "standby letters of credit" ("SBLCs") and "bank guarantees", from major international banks. SOF ¶¶ 35-46, 56-67, 68-74, 75-86, 87-96, 97-108. The instruments were to be "monetized" or "traded" on a "platform" generating astronomical profits from complex and secretive transactions. Id. None of the investors received any returns on the money they invested with Cooper and the Cooper Companies, and none of it was used to acquire any bank instruments or SBLCs. When asked at his deposition about facts relating to his schemes and if he was presently involved in "Prime Bank" or "High Yield" investments, Cooper declined to answer and asserted his privilege against self-incrimination under the Fifth Amendment to the U.S. Constitution ("Fifth Amendment Privilege"). He also failed to respond to Plaintiffs' request for admissions about these transactions. See Fed. R. Civ. P. 36(a)(3)

("A matter is admitted unless, within 30 days after being served, the party to whom the request is directed serves on the requesting party a written answer or objection addressed to the matter and signed by the party or its attorney.").²

ii. Fraudulent Escrow Account Information Scheme

In February 2011, Cooper was approached by an associate named Jack Riley about partnering with a company called Alliance Building Systems ("Alliance") to invest in a purported "Swiss Cash Trade" private placement program ("Swiss Cash Trade program"). SOF ¶¶ 87, 96. Under the Swiss Cash Trade program, a purported entity named Leybourne Holdings Limited ("Leybourne") would purchase and monetize a "One Hundred Million Euro Bank Guarantee" by placing the instrument into "trade". Id. In response, Cooper told Riley that he had a client with $5 million in attorney David H. Frederickson's client trust account and suggested that Cooper and Alliance each use their investors' funds to contribute half of the 3 million euro required for the purported deal and recommended Frederickson act as escrow agent and take possession of the combined funds. SOF ¶¶ 88-89, 96. Shortly thereafter, Cooper, through Global Funding, executed an agreement with Alliance and Leybourne, which stated that upon receipt of the 3 million euros, Leybourne would be "ready, willing and able" to purchase a bank guarantee from "a top twenty five world bank which will be delivered via [SWIFT] MT760" to an account with "Barclays Bank" in Geneva. SOF ¶ 89. In reality, neither Cooper nor Global Funding had an investor with $5 million in escrow with Frederickson. SOF ¶¶ 88, 96.

Cooper sent Frederickson a "final version" of the escrow agreement for the Swiss Cash Trade program that contained 11 paragraphs, but did not include any account information for Frederickson's client trust account. SOF ¶¶ 90, 96. Cooper sent Riley an escrow agreement for transmittal to Alliance and its investors, which included an additional 12th paragraph that Cooper inserted. SOF ¶¶ 91-92, 96. Below the new paragraph, entitled "WIRING INSTRUCTIONS TO BANK OF THE ESCROW AGENT", the account type was listed as "Attorney/Client Trust-IOLTA" and the account name was "DHF LLC". Id. But the account number Cooper provided was not Frederickson's. SOF ¶¶ 94, 96. Unbeknownst to the investors, Cooper had recently filed documents adopting Frederickson's initials (DHF) for one of Cooper's companies, which allowed Cooper to make it appear as though the account name on the wiring instructions was for attorney Frederickson's account when it in fact it was for Dream Holdings' account. Id.

In order to raise its share of the program funds, Alliance (through a related entity) entered into joint venture agreements with four investors: Francis Musso, Calibrated Capital, Fisher & Associates and James Shannon Logan. SOF ¶ 93. Those investors wired $925,000 to the bank account number provided by Cooper. SOF ¶¶ 93, 96. A few days after receiving the investors' money, Cooper spent it on hotels, cars, and other personal items. SOF ¶¶ 95-96.

iii. Brazilian Bond Fee Scheme

In April 2012, Cooper and his company REOP entered into a finder's fee agreement with the owners of a purported Brazilian bond whereby Cooper and REOP would be paid $50,000 for finding a bank or brokerage firm to accept the bond for listing and eventual sale. SOF ¶ 109. Cooper contacted Fred Schrodt ("Schrodt"), a representative at Penserra Securities LLC ("Penserra"), about opening an account at the broker-dealer, but the bond was never accepted by the firm. SOF ¶¶ 110, 114, 116.

While Penserra was reviewing the deal, Cooper or others acting at his direction or with his knowledge sent a forged email purportedly from Schrodt, though misspelling his name, to counsel for the seller, responding to counsel's questions about the transaction. SOF ¶¶ 112, 116. A few days later, Cooper or others acting at Cooper's direction or with Cooper's knowledge drafted and sent a letter, purportedly from Schrodt, to counsel for the bond owner indicating that Penserra had "accepted" the bond. SOF ¶¶ 110-111, 116. In actuality, the letter...