Cohmad Securities Corp. v. Galvin
| Decision Date | 18 August 2009 |
| Docket Number | 200902226 |
| Parties | Cohmad Securities Corporation v. William F. Galvin, in his capacity as Secretary of the Commonwealth et al. (fn1) |
| Court | Massachusetts Superior Court |
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Hinkle, Margaret R., J.
Currently before the Court is a motion for judgment on the pleadings filed under Mass.R.Civ.P. 12(c) and Superior Court Standing Order 1-96(4) by plaintiff Cohmad Securities Corporation (Cohmad). Pursuant to G.L.c. 30A, §14, Cohmad seeks judicial review of a Consolidated Order, issued May 7, 2009, by defendant Laurie Flynn, Acting Director of the Massachusetts Securities Division (division) of the Secretary of the Commonwealth (Secretary). The Consolidated Order contained a finding that Cohmad was in default based on the subsidiary finding that Cohmad had untimely filed its Answer to the division's Administrative Complaint. Judgment was entered on the default upon the further finding that this failure, in context, was a willful violation of the division's regulations.
The Court has stayed enforcement of the Consolidated Order, which the parties agree is a final decision of the Secretary in an adjudicatory proceeding and thus subject to judicial review under the Uniform Securities Act and the State Administrative Procedure Act. The Court suggested and the parties agreed to an expedited briefing schedule.
After a hearing and review of the administrative record and consideration of submissions by the parties and amicus curiae,(fn2) the entry of default judgment is vacated, and the matter is remanded for further proceedings consistent with this decision.
The Court's review is confined to the administrative record see G.L.c. 30A, §14(5), which has been supplemented by the Secretary under G.L.c. 30A, §14(4). The record includes evidence of the following.
Cohmad was a Massachusetts registered broker-dealer. Marcia Cohn served as Cohmad's President, Chief Operating Officer and Chief Compliance Officer and was a "direct owner" of Cohmad. Maurice Cohn served as Cohmad's Chairman and Chief Executive Officer and was also a "direct owner" of Cohmad. Robert Jaffe served as Cohmad's Vice President and was a "direct owner" of Cohmad. Jaffe was also a Massachusetts registered agent of Cohmad. Bernard Madoff was a Director of Cohmad and owned between 15 and 20 percent of Cohmad's shares. Peter Madoff was a Director of Cohmad and owned between five and 10 percent of Cohmad.
Following the December 2008 arrest of Bernard Madoff by federal authorities in New York City, the Secretary commenced an investigation, In the Matter of Bernard L. Madoff Investment Securities, Docket No. 2008-0087.
In connection with that investigation, on December 15 and 22 2008, the division served Cohmad with subpoenas pursuant to G.L.c. 110A, §407(b). Those subpoenas sought, by January 5 2009,(fn3) answers to interrogatories and production of documents pertaining to Cohmad's Massachusetts investors and Cohmad's relationship with Bernard L. Madoff Investment Securities and any related entities (Madoff Investment Securities) since January 1, 2000. Attached to each subpoena was a form, to be returned with the response to the subpoena, which sought verification that the response was, among other things, "complete and correct to the best of [the verifying official's] knowledge and belief."
As Cohmad was a New York corporation with a principal place of business in New York, the two December subpoenas were served upon Marcia Cohn at an address for Cohmad in New York City.
On or around January 2, 2009, Cohmad produced documents to the division in response to the two subpoenas. In a cover letter Cohmad's counsel wrote that additional responsive documents would be produced "shortly." On January 6, 2009, Cohmad further responded to the subpoenas over the general objections that the subpoenas were "overly broad, unduly burdensome, vague and ambiguous."
In counsel's January 6 cover letter, Cohmad answered the December 15 and December 22 interrogatories. Cohmad indicated that it "ha[d] not located documents responsive to Document Request No. 2 of the subpoena dated December 22, 2008" but that it was producing "samples of certain types of documents" which counsel "believe[d] contain[ed] information responsive to [the division's] requests." Counsel stated that Cohmad might be able to provide "additional samples" if the division believed that the types of documents provided were, in fact, responsive to its requests. Counsel wrote that Cohmad's responses to the two December subpoenas were "to the best of its knowledge complete as of the date of the[_] responses."
The Verification attached to the December 15 subpoena had been returned with the notarized signature of Marcia Cohn in her capacity as Cohmad's President; the Verification attached to the December 22 subpoena had been returned with the notarized name and title, but not signature, of Marcia Cohn. Responding to the division's challenge to the veracity of those verifications, Cohmad's counsel also wrote on January 6 that Marcia Cohn's "Verifications... were and continue to be accurate when read in conjunction with [counsel's] January 2, 2009 cover letter which informed the [division] that Cohmad would be producing additional responsive documents shortly."
On or around January 9, 2009, Cohmad supplemented its prior responses with additional information pertaining to one investor and with a document recently received from a third party.
On January 16, 2009, counsel for the division replied that Cohmad's response to the subpoenas was "deficient" because only samples of certain types of documents were produced and because certain "portions of the production... on their face, appear[ed] incomplete." The division's counsel stated that Cohmad was "in contumacy" and in violation of G.L.c. 110A and insisted that Cohmad cure the deficiencies.
On January 16, 2009, the division sent Cohmad a subpoena pursuant to G.L.c. 110A, §407(b), consisting of nine interrogatories and 15 requests for documents. Cohmad responded on January 30. In the cover letter with that response, Cohmad's counsel reiterated Cohmad's general objections and asserted legal and other objections to specific interrogatories and document requests. Counsel stated that Cohmad's prior responses were not deficient, but "[n]evertheless" Cohmad produced additional documentation in response to the December 15 and 22, 2008, subpoenas.
In all, Cohmad produced 19,959 pages of documents in response to the division's subpoenas.
Cohmad did not return the Verification attached to the January 16 subpoena; Cohmad questioned the division's authority to require a corporation to provide such verifications and disputed the division's "apparent[_]... position that a corporate officer or employee consents to the Secretary's jurisdiction over him or her personally by executing a verification form in his or her corporate capacity..." Cohmad also specifically "preserv[ed]" its right to assert "jurisdictional and other objections with respect to out-of-state individuals employed by Cohmad."
On or around January 27, 2009, the division served upon Cohmad's counsel a subpoena to Cohmad pursuant to G.L.c. 110A, §407(b), requiring testimony before the division on February 10, 2009, of the person or persons designated by Cohmad as "most knowledgeable" about payments since January 1, 2000, from Madoff Investment Securities to Cohmad and to certain people affiliated with Cohmad and about "the purpose of [those] payments." On February 6, counsel for Cohmad replied by letter that Cohmad was asserting legal objections to the January 27 subpoena and that Cohmad "d[id] not intend to produce a witness or witnesses" to testify before the division in response to the subpoena.
On December 17, 2008, the division subpoenaed Robert Jaffe pursuant to G.L.c. 110A, §407(b), to appear before the division on January 6, 2009. (fn4) Principally for reasons ostensibly relating to Jaffe's health, his appearance was postponed until January 21. A January 19 request for further postponement, based on legal and other objections unrelated to Jaffe's health, was denied by the division. When Jaffe did not appear on January 21, the division initiated an enforcement action in this Court that resulted in a January 26 Order (Neel, J.) requiring Jaffe to comply with the terms of the subpoena by February 6, 2009.
On February 4, 2009, Jaffe appeared before the division. When questioned about his business, Cohmad's business or Bernard Madoff's business, Jaffe invoked his rights under the Fifth Amendment to the United States Constitution and art. 12 of the Massachusetts Declaration of Rights.
On January 6, 2009, the division subpoenaed Marcia Cohn pursuant to G.L.c. 110A, §407(b), to testify before the division on January 20. After a subsequent exchange of correspondence between counsel over conditions for postponing Marcia Cohn's testimony, on January 28, the division was informed that Marcia Cohn intended to raise "jurisdictional" and "substantive" challenges to any enforcement of the January 6 subpoena. Counsel for the division replied the following day that Marcia Cohn "remain[ed] in contumacy for failing to appear on January 20th" and requested an explanation both of the "rationale for taking the position that the Secretary lack[ed] jurisdiction over Ms. Cohn" and of the substantive grounds for challenging enforcement of the subpoena. Marcia Cohn never testified before the division.
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