S.E.C. v. Gonzalez De Castilla

• Decision Date: 08 February 2002
• Docket Number: No. 01 CIV 3999(RWS).,01 CIV 3999(RWS).
• Citation: 184 F.Supp.2d 365
• 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

Page 365

184 F.Supp.2d 365

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.

No. 01 CIV 3999(RWS).

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

February 8, 2002.

Securities and Exchange Commission, Washington, DC (John D. Worland, Jr., Mark Kreitman, Lawrence A. West, Neil J. Welch, Jr., Jose M. Rodriguez, Nancy McGinley, of Counsel), for Plaintiff.

Cravath, Swaine & Moore, New York City (John E. Beerbower, of Counsel), for Defendant Alejandro Duclaud Gonzalez de Castilla Martha Baranda de Igartua, Ana Igartua Baranda de Duclaud and Anushka Trust.

Gleason Koatz & Dyer, New York City (John P. Gleason, of Counsel), for Defendant Jose Antonio Duclaud.

Hogan & Hartson, New York City (Ira M. Feinberg, Lyndon M. Tretter, of Counsel), for Defendants Pablo Velazquez Baranda, Elvira Baranda Garcia, and Maricruz Lozano Ledezma.

Squadron Ellenoff Plesent & Sheinfeld, New York City (Ira Lee Sorkin, of Counsel), for Defendant Rodrigo Igartua Baranda.

Milbank, Tweed, Hadley & McCloy, New York City (Andrew E. Tomback, Matthew M. Oliver, Jennifer M. Anglim, of Counsel), for Non-Party Ignacio Guerrero (Beneficiary of Banrise Ltd. BVI).

OPINION

SWEET, District Judge.

Defendant Alejandro Duclaud Gonzalez de Castilla ("A.Duclaud"), Anteres Holdings Investment, Ltd. ("Antares"), Jose Antonio Duclaud Gonzalez de Castilla ("J.Duclaud"), Caribbean Legal Trust, Rodrigo Igartua Baranda ("Igartua"), and Banrise Limited B.V.I. ("Banrise"), have moved pursuant to Rule 56, Fed.R.Civ.P. for summary judgment dismissing the complaint of the plaintiff Securities and Exchange Commission ("SEC") which has alleged insider trading violations of the securities laws in connection with a January 2000 tender offer for CompUSA, Inc. ("CompUSA"). The SEC has moved pursuant to Rule 15, Fed.R.Civ.P. to amend its complaint to add allegations of insider trading violations in connection with the acquisition of Pasteleria Francesa ("El Globo") in May 1999, and to add claims relating to a transaction involving Prodigy Communications Corporation ("Prodigy") in November 1999. For the reasons and upon the findings and conclusions set forth below, both motions are granted.

Parties

The parties at the outset of the action were described in the June 27, 2001 opinion of this Court in SEC v. Duclaud Gonzalez de Castilla, 145 F.Supp.2d 402 (S.D.N.Y.2001) ("Duclaud I") and those descriptions are repeated in substance here.

SEC is a governmental agency charged with the task of ensuring compliance with federal securities laws.

A.Duclaud is a Mexican citizen and resident married to defendant Ana Igartua Baranda de Duclaud ("A.Igartua"), who is also the sister of Igartua. At all times relevant to this action, A.Duclaud was a partner in the Mexico City law firm of Franck Galicia, Duclaud and Robles, S.C. ("Franck Galicia"). At the relevant times, Franck Galicia represented prominent Latin American investor Carlos Slim Helu ("Slim") and his companies, including Grupo Sanborns, S.A. de S.V. ("Sanborns") which acquired CompUSA in a tender offer publicly announced on January 24, 2000.

A.Duclaud is the settlor, or creditor, 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 Paine Webber, Inc. ("Paine Webber"), including the CompUSA trades at issue in this action. A.Duclaud first created his offshore trust and corporation in 1998 and, in establishing the trust and corporation, his name and address, a copy of his passport and a copy of the masthead for his law firm all were provided to Paine Webber. A "Form W-8BEN: Certificate of Foreign Status of Beneficial Owner for the United States Tax Withholding" was filed with the Internal Revenue Service on the day that Anushka Holdings, Ltd. was established. The offshore account was created for reasons of security and to obtain favorable tax treatments with respect to capital gains.

Defendant J.Duclaud, the brother of A.Duclaud, is a Mexican citizen and resident who practices law in Cancun. J.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 Caribbean Legal Trust makes equity investments through an account at Paine Webber, including the CompUSA trades at issue in this case.

Defendant Pablo Velazquez Baranda ("Velazquez") is a Mexican citizen and resident. His cousin is married to A.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 ("Lozano") and his mother, defendant Elvira Baranda Garcia ("Baranda").

Defendant Igartua, 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, an offshore company established in order to facilitate his investment. He is Velazquez's cousin and A.Igartua's brother, and is thereby A.Duclaud's brother-in-law. Martha Baranda de Igartua is his mother. Both A.Duclaud and J.Duclaud are Igartua's clients.

Non-party witness Ignacio Guerrero ("Guerrero") was an executive director of Banco Internacionale ("Bital"), one of the largest banks in Mexico. He is also the beneficial owner of defendant Banrise Ltd. BVI ("Banrise"), 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 A.Duclaud and Igartua.

Prior Proceedings

This action was commenced by the filing of the complaint and an application for a temporary restraining order on May 10, 2001, which was entered that date and modified on May 17, freezing assets in brokerage accounts held by the defendants. Expedited discovery was granted, and a motion for preliminary injunction and a continuation of the freeze was made.

On June 27, 2001, in Duclaud I, the motion for an injunction was denied, and the freeze was continued, except as to defendants Velazquez, Lozano, and Baranda. Discovery continued and on August 20, 2001, Rule 12(b)6 motions by the defendants Lozano, Baranda, and A.Igartua were denied in an opinion filed that date. S.E.C. v. Duclaud Gonzalez de Castilla, No. 99 Civ. 3999(RWS), 2001 WL 940560 (S.D.N.Y. Aug.20, 2001) ("Duclaud II") (denying motion to dismiss for lack of personal jurisdiction, with leave to refile after close of discovery). On October 2, Velazquez, Lozano, and Baranda were dismissed from the action by stipulation. On November 2, 2001, a motion by J.Duclaud, Banrise, and Guerrero to modify the asset freeze on their accounts was granted in part to allow the payment of legal expenses. S.E.C. v. Duclaud Gonzalez de Castilla, 170 F.Supp.2d. 427 (S.D.N.Y. 2001).

On August 10, 2001, J.Duclaud and Caribbean Legal Trust filed the instant motion for summary judgment, joined subsequently by A.Duclaud, Igartua, Antares, and Banrise. The SEC filed a motion to amend the complaint on September 5.

The instant motions were heard and marked submitted on October 31, 2001.

The Issue

The SEC has posited that the defendants constituted "an insider trading ring operating out of Mexico City" (Pls.' Opp'n to Mot. for Summ. J., at 1) which made millions from purchases and sales of CompUSA stock, consistent with two prior investments based on inside information. A.Duclaud is charged as a "tipper" who provided the inside information to the various other individual defendants. According to the SEC, a "signature crime" has been committed, whereby payoffs were made on each investment for the information provided.

A.Duclaud, a member of a prominent Mexico City law firm, has maintained his innocence and undertaken to prove the negative. That is, he claims that he had no inside information because it did not exist at the time of the purchases of CompUSA stock. The resolution of the motions turn largely on the factual record.

The Facts with Respect to the CompUSA Tender

A.Duclaud and J.Duclaud have submitted Statements of Facts pursuant to Local Rule 56.1, and the SEC has submitted a Revised Rule 56.1 Statement from which the following facts relating to the transactions and activities surrounding the CompUSA tender offer are drawn. These facts are not in dispute except as noted.

Slim is a billionaire Mexican businessman whose companies account for almost half of Mexico's stock index. He has received international attention as a shrewd bargain hunter with a reputation for "snapping up distressed companies at discount prices" and earning astronomical profits. (Beerbower Aff. Ex. G.). The phenomenon of investors following Slim was well established in Mexico by 1999.

On September 10, 1999, Slim filed a Schedule 13G indicating that he, his family, and their affiliated entities had acquired 14.1% of the outstanding shares of CompUSA which were listed on the New York Stock Exchange. In September 1999, national news outlets were reporting widespread speculation about a possible takeover of CompUSA. (Alan Goldstein and Dianne Solis, "Mexican Tycoon Buys Stake in Dallas-Based Retailer CompUSA," The Dallas Morning News, 1999 WL 22014607 (Sept. 13, 1999)).

Knight-Ridder reported on September 13, 1999 that CompUSA had been the subject of persistent takeover rumors and noted that "[s]hares in CompUSA rose 6 percent Friday as word spread on Internet chat...