S.E.C. v. Gonzalez De Castilla
| Decision Date | 27 June 2001 |
| Docket Number | No. 01 Civ. 3999(RWS).,01 Civ. 3999(RWS). |
| Citation | 145 F.Supp.2d 402 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Alejandro Duclaud GONZALEZ DE CASTILLA, Jose Antonio Duclaud Gonzalez de Castilla, Pablo Velazquez Baranda, Maricruz Lozano Ledzma, Rodrigo Igartua Baranda, Elvira Baranda Garcia, Ana Igartua Baranda de Duclaud, Martha Baranda de Igartua, Anushka Trust, Caribbean Legal Trust, Antares Holdings Investment Ltd., and Banrise Ltd., BVI, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Securities and Exchange Commission by Mark Kreitman, Kevin O'Rourke, William R. Baker, III, Lawrence A. West, Neil J. Welch, Jr., Jose M. Rodriguez, Washington, DC, for Plaintiff.
Cravath, Swaine & Moore by John E. Beerbower, New York City, for Defendant Alejandro Duclaud Gonzalez de Castilla.
Gleason Koatz & Dyer by John P. Gleason, New York City, for Defendant Jose Antonio Duclaud.
Hogan & Hartson by Ira M. Feinberg, Lyndon M. Tretter, New York City, for Defendants Pablo Velazquez Baranda, Elvira Baranda Garcia, and Maricruz Lozano Ledezma.
Squadron Ellenoff Plesent & Sheinfeld by Ira Lee Sorkin, New York City, for Defendant Rodrigo Igartua Baranda.
Milbank, Tweed, Hadley & McCloy by Andrew E. Tomback, Matthew M. Oliver, Jennifer M. Anglim, New York City, for Non-Party Ignacio Guerrero Beneficiary of Banrise Ltd. BVI.
In this action, plaintiff Securities and Exchange Commission ("SEC") alleges that defendant Alejandro Duclaud Gonzalez de Castilla ("A.Duclaud"), received and passed to various friends and relatives in Mexico inside information pertaining to a January 2000 tender offer for CompUSA, Inc. ("CompUSA") that collectively yielded them millions of dollars.
After obtaining an ex parte temporary restraining order freezing the assets in brokerage accounts held by the individual defendants, an order for sworn accounting from each defendant and expedited discovery on May 10, 2001, the SEC has now moved (1) for a preliminary injunction enjoining the defendants from committing future violations of the federal securities laws; and (2) to continue the asset freeze until trial. Defendants A. Duclaud, Jose Antonio Duclaud Gonzalez de Castilla, ("J.Duclaud"), Pablo Velazquez Baranda ("Velazquez"), Maricruz Lozano Ledezma ("Lozano"),1 Elvira Baranda Garcia ("E.Baranda"), Rodrigo Igartua Baranda ("R.Igartua"), non-party witness Ignacio Guerrero ("Guerrero"),2 and his company, defendant Banrise Ltd. BVI ("Banrise"), opposed the motion.
For the reasons set forth below, the motion to continue the temporary restraining order freezing the defendants' assets and accounts, as modified in open court on June 8, 2001, is granted in part. The freeze shall continue through the trial, or until the resolution of this action by agreement of the parties, against all defendants except Pablo Velazquez, Maricruz Lozano Ledezma, and Elvira Baranda Garcia, for whom it shall be lifted. The motion for a preliminary injunction restraining future violations of the securities laws is denied as to all defendants.
Plaintiff Securities and Exchange Commission ("SEC") is a governmental agency charged with the task of ensuring compliance with federal securities laws.
Defendant Alejandro Duclaud is a Mexican citizen and resident married to defendant Ana Igartua Baranda de Duclaud ("A.Igartua"). At all times relevant to this action, he was a partner in the Mexico City law firm of Franck, Galicia, Duclaud and Robles, S.C. ("Franck, Galicia"). Franck, Galicia represents prominent Latin American investor, Carlos Slim Helu ("Slim"), and his companies, including Grupo Sanborns, which acquired CompUSA in a tender offer publicly announced on January 24, 2000. As a member of the Regulations Committee of the Mexican stock exchange since 1996, Duclaud participated in the drafting and enactment of regulations for the exchange, including those relating to insider trading. Alejandro Duclaud has resigned from Franck, Galicia and had his name removed from their firm name on May 21, 2001. He resigned his position at the Mexican stock exchange Regulations Committee on May 25, 2001, and is currently unemployed.
Alejandro Duclaud is the settlor, or creator, of nominal defendant Anushka Trust. The Anushka Trust is governed by English law and beneficially owns all the stock of Anushka Holdings, Ltd. The Anushka Trust makes equity investments through an account at PaineWebber, Inc. ("PaineWebber"), including the CompUSA trades at issue in this action.
Defendant Jose Antonio Duclaud, like his brother, Alejandro Duclaud, is a Mexican citizen and resident who practices law. Jose Antonio Duclaud's law offices are located in Cancún.
Jose Antonio Duclaud is the settlor, or creator, of nominal defendant Caribbean Legal Trust, which beneficially owns all the stock in Caribbean Legal Holdings, Ltd. ("Caribbean Legal Holdings"). The Carribean Legal Trust makes equity investments through an account at PaineWebber, including the CompUSA trades at issue in this case.
Defendant Pablo Velazquez Baranda is a Mexican citizen and resident. His cousin is married to Alejandro Duclaud. Velazquez traded CompUSA stock through an account at Lehman Brothers, which he held in his own name jointly with his wife, defendant Maricruz Lozano Ledzma, and his mother, defendant Elvira Baranda Garcia.
Defendant Rodrigo Igartua Baranda, a Mexican citizen and resident, is a professional financial advisor who acts as the Chairman and Chief Executive Officer of SB Asesores S.A. de C.V. ("S.B.Asesores"), and is the president of defendant Antares Holdings Investment, Ltd. ("Antares"), an off-shore company established in order to facilitate his investments. Rodrigo Igartua Baranda is a cousin of defendant Pablo Velazquez Baranda, and is Alejandro Duclaud's brother-in-law. Both Alejandro and Jose Antonio Duclaud are Igartua's clients, and Alejandro and Rodrigo are involved in a real estate project together in Acapulco. Three of Igartua's brokerage accounts have been frozen in this action, including a personal account held at Lehman Brothers, the Antares PaineWebber account, and a PaineWebber account held jointly with his mother, defendant Martha Baranda de Igartua ("M.Baranda"), and his sister, defendant Ana Igartua Baranda de Duclaud ("A.Igartua").
Non-party witness Ignacio Guerrero is an Executive Director of Banco Internacionale ("BITAL"), one of the largest banks in Mexico. He is also the beneficial owner of defendant Banrise Limited BVI, an entity formed under the laws of Ireland in the mid-1990's, and reorganized under the law of the British Virgin Islands in the summer of 1999, which trades through Beta Capital Management, L.P. ("Beta Capital"), in Miami, Florida. Guerrero is a long-time friend of Alejandro Duclaud and Rodrigo Igartua.
The facts presented by the parties are set forth in the complaint, affidavits of the parties, and discovery materials disclosed thus far. The amount of shares traded, amount per share, dates of trades, and profits are undisputed.3 However, the SEC, relying on the theory that an unlawful tip from Alejandro Duclaud regarding Grupo Sanborn's impending tender offer for CompUSA prompted the defendants' purchases of CompUSA stock, has contested the defendants' assertions that their lucrative trades were solely the result of their own research, financial advisors' recommendations, and good fortune. The following constitute the Court's factual findings.
On September 10, 1999, Carlos Slim Helo filed a Schedule 13G indicating that he, his family, and their affiliated entities4 had acquired 14.1% of the outstanding shares of stock in CompUSA. (Compl. ¶ 4; Beerbower Aff. Ex. P.) Rafael Robles Miaja ("Robles") of Franck, Galicia was listed on the cover sheet as Slim's attorney. Robles has testified by deposition that his only knowledge of Grupo Sanborns's interest in CompUSA was gained from reviewing the 13G before it was filed. On the day the Schedule 13-G was filed, CompUSA stock closed at approximately $7 per share. (Compl.¶ 14.)
Slim, a billionaire Mexican businessman whose companies account for almost half of Mexico's stock index, has received international attention as a "shrewd bargain hunter" (Beerbower Aff. Ex. G) with a reputation for "snapping up distressed companies at discount prices" (Beerbower Aff. Ex. H), and earning astronomical profits. The phenomenon of investors "following" Slim was well established in Mexico by 1999. (See, e.g., Tomback Decl. Ex. Q (Michael S. Serrill, Mexican Prodigy, Time International, June 3, 1996).)5
Ignacio Guerrero and his business partner, non-party Gustavo Ortega ("Ortega"), aver that Slim's 13G filing prompted them to begin reviewing analyst reports, news reports, and other financial information concerning the desirability of selecting CompUSA as an investment vehicle for themselves and for their clients. (Ortega Decl. ¶¶ 2,3; Guerrero Tr. 170:16-21, 171:14-172:21, 173:21-174:23.)6
In the next two months, executives from Grupo Sanborns and CompUSA met several times in Mexico City and in Dallas, Texas to discuss Grupo Sanborns's interest in CompUSA and the possibility of establishing commercial arrangements between the two companies and their affiliates. (Compl.¶¶ 15-17.)
Slim filed a Schedule 13D on November 22, 1999, reflecting that he had increased his ownership of CompUSA to 14.8%, and notifying the public of the possibility that he might consider participating in transactions affecting the control of CompUSA. (Compl. ¶ 22; Beerbower Aff. Ex. O at 7 ("Item 4").) Again, Robles was listed as the Franck, Galicia attorney for Grupo Sanborns, but testified that his only involvement was to review the 13D before it was filed. CompUSA stock closed the day at $5.875 per share. (Compl.¶ 22). The press reacted positively about the outlook for CompUSA in light of Slim's increasingly serious interest in it. (See, e.g. Tomback Decl. Ex. S ...
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