Sec. & Exch. Comm'n v. Genovese

• Citation: 553 F.Supp.3d 24
• Decision Date: 06 August 2021
• Docket Number: 18-cv-942 (JGK)
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Nicholas J. GENOVESE, Willow Creek Investments, LP, and Willow Creek Advisers, LLC, Defendants.
• Court: U.S. District Court — Southern District of New York

553 F.Supp.3d 24

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Nicholas J. GENOVESE, Willow Creek Investments, LP, and Willow Creek Advisers, LLC, Defendants.

18-cv-942 (JGK)

United States District Court, S.D. New York.

Signed August 6, 2021

Alexander Mircea Vasilescu, Sanjay Wadhwa, Gerald A. Gross, James K. Hanson, Karen Michelle Lee, U.S. Securities and Exchange Commission, Marc Peter Berger, Ropes & Gray, LLP, New York, NY, for Plaintiff.

Nicholas J. Genovese, Cumberland, MD, Pro Se.

AMENDED MEMORANDUM OPINION AND ORDER

JOHN G. KOELTL, District Judge:

The Securities and Exchange Commission ("SEC") has brought suit against Nicholas J. Genovese, and two entities under his ownership and control, Willow Creek Advisers, LLC ("Willow Creek") and Willow Creek Investments, LP (the "WC Fund"), alleging that Genovese and the WC Fund violated the antifraud provisions of the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act"), and that Genovese and Willow Creek violated the antifraud provisions of the Investment Advisers Act of 1940 ("Advisers Act"). In related criminal proceedings, Genovese has already pleaded guilty to securities fraud, pursuant to a plea agreement. Genovese, who is incarcerated and appearing pro se, has filed objections challenging certain orders by Magistrate Judge Moses, to whom the case was referred for general pre-trial purposes. Genovese has also requested that this Court grant sanctions against counsel for the SEC.

The SEC has moved for summary judgment on its claims, and Genovese has opposed the motion. No counsel has appeared to represent Willow Creek and the WC Fund at any stage of this proceeding.

For the reasons that follow, Genovese's objections to the Magistrate Judge's orders and his request for sanctions are denied , and the SEC's motion for summary judgment is granted .

I.

The following facts are taken from the Complaint, declarations and exhibits filed in connection with the parties’ motions, and the SEC's Local Rule 56.1 statement, and are undisputed unless otherwise noted.¹

A.

The SEC brought this action on February 2, 2018, alleging that the defendants had engaged in a scheme to defraud investors by knowingly or recklessly making false statements regarding Genovese's background, including his money-management and securities experience, and by distributing a private placement memorandum containing such false statements. Compl. ¶ 1, ECF No. 1; Pl.’s 56.1 Stmt, ¶¶ 7-9. The SEC alleged such activity constituted violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and 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, by the WC Fund and Genovese, as well as violations of Sections 206(1), 206(2), and 206(4) of the Advisers Act, 15 U.S.C. §§ 80b-6(1), 80b-6(2), and 80b-6(4), and Rule 206(4)-8 thereunder, 17 C.F.R. § 275.206(4)-8, by Genovese and Willow Creek. Id. ¶ 7. On the same day, the United States Attorney's Office for the Southern District of New York ("USAO") filed a criminal complaint against Genovese, who was arrested on that same day in Florida. United States v. Nicholas J. Genovese, 18-cr-183 (S.D.N.Y.), ECF No. 1. Also on the same day, this Court granted emergency relief, including imposing a temporary restraining order and asset freezes against the defendants. Pl.’s 56.1 Stmt. ¶ 9; ECF No. 4.

On March 1, 2018, the USAO obtained and filed an indictment ("Indictment") based on the same conduct and circumstances that underly the SEC's complaint. Pl.’s 56.1 Stmt. ¶ 12. The Indictment charged Genovese with one count of securities fraud under Section 10(b) of the Exchange Act and Rule 10-b thereunder and one count of wire fraud, based on allegations that Genovese had falsely obtained millions of dollars from investor victims through the WC Fund, a purported "hedge fund" and Willow Creek. Pl.’s 56.1 Stmt. ¶¶ 12-13.² On June 21, 2018, this Court stayed this action pending determination of the criminal proceedings against Genovese. ECF No. 21. On October 19, 2019, Genovese pleaded guilty to one count of securities fraud in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and he admitted to committing securities fraud from at least 2015 until the time of his arrest by misrepresenting his employment history, relevant experience, and education in order to induce investments. Pl.’s 56.1 Stmt. ¶¶ 14-15. On February 11, 2020, Genovese was sentenced principally to a term of 140 months’ imprisonment. Id. ¶ 17. The sentencing court entered a criminal judgment against Genovese and a restitution order, finding Genovese responsible for restitution in the amount of $11,211,704. Id. ¶¶ 19-20.

B.

At the time of his arrest, Genovese was the sole principal, owner, and managing director of Willow Creek, and the sole owner of Willow Creek GP, LLC ("WC GP"), the general partner of the WC Fund. Id. ¶ 2. The WC Fund is a Delaware limited partnership with its principal place of business in New York, and is controlled by Genovese through WC GP. Pl.’s 56.1 Stmt. ¶ 4. The WC Fund's bank accounts are controlled by Genovese. Pl.’s 56.1 Stmt. ¶ 5; Decl. of James Hanson in Support of Summary Judgment, ECF No. 62 ("Hanson SJ Decl."), Ex. 2. Willow Creek is a Delaware limited liability company with its principal place of business in New York. Pl.’s 56.1 Stmt, ¶ 6; Hanson SJ Decl., Ex. 2. In filings to this Court, Genovese described both the WC Fund and Willow Creek as his "alter egos." ECF No. 26, at 2.

Since at least 2014, the WC Fund has sold over $5 million worth of limited partnership interests. Pl.’s 56.1 Stmt. ¶ 4; Hanson SJ Decl., Ex. 2. On April 22, 2016, Genovese caused WC Fund to file Form D with the SEC, which described the WC Fund as a "hedge fund" and "pooled investment vehicle." Pl.’s 56.1 Stmt. ¶ 5; Hanson SJ Decl., Ex. 2. Although Genovese is listed on the Financial Industry Regulatory Authority's Central Registration Depository database, it is uncontested that Genovese holds no securities licenses and has never been associated with any registered broker-dealer or investment adviser. Pl.’s 56.1 Stmt. ¶ 3; Hanson SJ Decl., Ex. 2. Between 1990 and 2004, Genovese was convicted of theft by deception, grand larceny, identity theft, and second-degree scheme to defraud, in five separate criminal actions. Pl.’s 56.1 Stmt, ¶ 3; Decl. of James Hanson in Support of TRO, ECF No. 9 ("Hanson TRO Decl."), Ex. 9. In 1998 and 1999, while serving a prison sentence, Genovese filed for and received a bankruptcy discharge under Chapter 7 of the United States Bankruptcy Code. Hanson TRO Decl., Ex. 9, at 40-41.

On December 21, 2017, Edward Janowsky, a Staff Accountant with the SEC's Office of Compliance Inspections and Examinations, visited Willow Creek's offices located at 1 Liberty Plaza, and provided Genovese with a document request list. Decl. of Edward Janowsky, ECF No. 8 ("Janowsky Decl.") ¶¶ 1, 3-4. At Genovese's direction, Janowsky contacted Genovese's lawyer. Id. ¶ 4. On January 17, 2018, in response to Item 5 on the document request list, Genovese's lawyer provided Janowsky with a document that purported to list the WC Fund's seven current and former investors, and the document described Willow Creek's total assets under management as totaling approximately $5.3 million. Id. ¶ 5; Janowsky Decl., Ex. 2. When the SEC staff conducted a search of the Bluesheet Management System, described by Janowsky as the "primary means by which trade data is transmitted from broker-dealers to the SEC and Self Regulatory Organizations," no brokerage accounts were found for Willow Creek, but three accounts under Genovese's name were identified with TD Ameritrade. Janowsky Decl. ¶ 9. Based on the brokerage records for Genovese's TD Ameritrade accounts for the period from January 2015 to January 2018, Janowsky determined that the accounts received wire transfers totaling approximately $8.5 million, and that between 2015 and 2017 the accounts appear to have "sustained trading losses of more than $8 million, primarily through options trading." Id. ¶ 10; Janowsky Decl., Ex. 5. Genovese has not denied that no Willow Creek brokerage accounts exist. The SEC has also introduced evidence, including brokerage account statements for the accounts in Genovese's name, to suggest that Genovese withdrew money from the brokerage accounts containing money received from the WC Fund investors, for ATM withdrawals, and food, hotel, and transportation expenses. Pl.’s 56.1 Stmt. ¶ 42; Janowsky Decl. ¶ 10, Ex. 5.

The SEC has also provided a sworn affidavit from Geoffrey Orley who has stated that, after being introduced to Genovese through a mutual friend, Genovese told Orley that Genovese had previously worked at Bear Sterns and Goldman Sachs, and that Genovese had graduated from the University of Kentucky and the Dartmouth Tuck School of Business. Hanson TRO Decl., Ex. 2 ¶ 2. Orley has stated that Genovese said that he founded Willow Creek after leaving Bear Sterns, bringing along three former Bear Sterns traders with him, and that Genovese's fund was worth "approximately $30 billion" with "investment returns of around "30 to 40" percent per year. Id. ¶¶ 3-4.

The SEC has provided a copy of a "Confidential Private Placement Memorandum" ("PPM"), dated April 2016, for limited partnership interests, worth $1 million, in the WC Fund. Hanson TRO Decl., Ex. 1. In his affidavit, Orley stated that Orley and Orley's brother received a copy of the PPM after making their investment in the WC Fund. Hanson TRO Decl., Ex. 2 ¶¶ 7-8. The PPM describes Genovese's background as follows:

Nicholas Genovese is the founder and Chief Executive Officer of the General Partner and the Investment Manager and the main portfolio manager/analyst with primary responsibility for making investment decisions for the Partnership. Prior to founding Willow Creek 8 years ago, Mr. Genovese was a Partner at Goldman Sachs and previous to that was Portfolio

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