S.E.C. v. Merrill Scott & Associates, Ltd.
| Decision Date | 21 May 2007 |
| Docket Number | No. 2:02-CV-39-TC.,2:02-CV-39-TC. |
| Citation | 505 F.Supp.2d 1193 |
| Court | U.S. District Court — District of Utah |
| Parties | SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. MERRILL SCOTT & ASSOCIATES, LTD., Merrill Scott & Associates, Inc., Phoenix Overseas Advisers, Ltd., Gibraltar Permanente Assurance, Ltd., Patrick M. Brody, David E. Ross II, and Michael G. Licopantis, Defendants. |
Thomas M Melton, Cheryl M. Mori, Karen L. Martinez, William B. Mckean, Securities And Exchange Commission, Salt Lake City, UT, for Plaintiff.
Brent E. Johnson, James L. Barnett, Holland & Hart, Reha Kamas Deal, Utah Attorney General's Office, Jeffrey R. Olsen, Randall A Mackey, Gifford W Price, Gregory N. Jones, Russell C. Skousen, Mackey Price Thompson & Ostler, Rodney G. Snow, Jennifer A. James, Clyde Snow Sessions & Swenson, Salt Lake City, UT, for Defendants.
Plaintiff Securities & Exchange Commission (SEC) seeks summary judgment against individual defendant Patrick M. Brody in this civil securities fraud action. Mr. Brody is the only remaining defendant in this five-year-old case.
As demonstrated below, the undisputed facts prove that Mr. Brody violated the anti-fraud provisions and broker registration requirements of the federal securities laws. Accordingly, the SEC is entitled to judgment as a matter of law, and the court GRANTS SEC's Motion for Summary Judgment Against Defendant Patrick M. Brody.
The SEC seeks permanent injunctive relief against future violations of the federal securities laws, disgorgement of Mr. Brody's ill-gotten gains, prejudgment interest on those gains, and a civil monetary penalty. Because the court finds liability on the part of Mr. Brody, the court hereby enters the requested permanent injunction against Mr. Brody and orders Mr. Brody to pay $16,622.163.11 in disgorgement and pre judgment interest. The court defers ruling on SEC's request for a civil monetary penalty until further briefing and a hearing are completed.
The factual and procedural background is set forth at length in the written submissions of the parties. The court will repeat only those facts necessary to explain its decision.
The facts are undisputed,1 not because of any stipulation between the parties but because the court strikes the evidence (that is, sworn discovery responses) that Mr. Brody submitted in an attempt to controvert facts set forth in SEC's Motion.2 The reasons for striking Mr. Brody's evidence are discussed below in the section addressing Mr. Brody's last minute attempt to waive his Fifth Amendment privilege against self-incrimination, which he asserted in 2003.
But before the court sets forth the facts, it must address Mr. Brody's evidentiary objections.
Mr. Brody makes specific objections in response to specific evidence and statements of fact in the SEC's memorandum. This section addresses those objections.
But he also makes a very broad objection in his opposition memorandum, in which he states that the ninety-three exhibits provided by the SEC "are, for the most part, improperly before the court and this defendant moves that [with narrow exceptions identified by Mr. Brody] they be stricken because they lack foundation, are not based on personal knowledge, do not affirmatively show the affiant or the deponent is competent to testify as to the matters stated therein, and because the documents are not authenticated ..., lack foundation, or are privileged so as to make them inadmissible in evidence." (Brody's Opp'n Mem. at 14 n. 28.) The court will not consider such a blanket objection.
Mr. Brody contends that the SEC fails to meet the best evidence requirements of the Federal Rules of Evidence because SEC did not produce written agreements between the investors and Merrill Scott & Associates, Ltd. (MSAL). (See Brody Opp'n Mem. at 2 n. 25.) As SEC notes) Mr. Brody's objection misses the mark. Rule 1002 of the Federal Rules of Evidence requires a party to provide an original writing to prove the writing's contents. But, in this case, the SEC is not attempting to prove the contents of the written contracts between MSAL and investors. Rather, MSAL and Mr. Brody made oral promises to investors, and the best evidence of those verbal representations is the investors' testimony about what Mr. Brody and MSAL said to them.3
Mr. Brody further contends that MSAL employee and investor testimony regarding MSAL's and Mr. Brody's oral representations about the use and control of investor funds is inadmissible hearsay. (Id.) Mr. Brody is incorrect. Admissions by party-opponents are admissible, even if they are not based on personal knowledge. Fed.R.Evid. 801(d)(2); Grace United Methodist Church v. City of Cheyenne, 451 F.3d 643, 665-67 (10th Cir.2006).
Mr. Brody objects to certain deposition testimony that, he contends, is inadmissible because it lacks foundation. (See, e.g., Brody's Opp'n Mem. at pp. 14 n. 28, jj-mm, pp-tt.) Rule 32 of the Federal Rules of Civil. Procedure provides that:
Objections to the competency of a witness or to the competency, relevancy, or materiality of testimony are not waived by failure to make them before or during the taking of the deposition, unless the ground of the objection is one which might have been obviated or removed if presented at that time.
Fed.R.Civ.P. 32(d)(3)(A) (emphasis added). Foundation is one type of objection that could have been "obviated or removed" if Mr. Brody had attended any of the depositions. See, e.g., Jordan v. Medley, 711 F.2d 211, 218 (D.C.Cir.1983) () (internal citation omitted; emphasis in original). But Mr. Brody did not attend any depositions and so he did not make the objection at the appropriate time. Even assuming there was a problem with foundation, Mr. Brody has waived the objection.
Mr. Brody makes other types of evidentiary objections in his response. For example, he objects to the admissibility of emails cited in paragraphs 75-78 of the SEC's supporting memorandum. He also objects to evidence cited in paragraph 79, which he asserts are "hearsay legal conclusions" presented by deponent O.E. (Bud) Stoner, III. But even if the court were to disregard this evidence, the record is replete with other evidence to support the SEC's overall case against Mr. Brody.
Mr. Brody challenges certain aspects of Gil A. Miller's May 2006 Expert Report (setting forth results and opinions derived from a forensic accounting). (See, e.g., Brody Opp'n Mem. at p. ee) ( conclusory fashion that "plaintiff and its expert CPA [are] taking an incomplete fact and misrepresenting it."); id. at p. xx ("The expert accounting report of Gil A. Miller, CPA, was not prepared to a summary judgment standard and was not prepared by gathering all available accounting evidence, organizing it in the manner most favorable to Mr. Brody, and then drawing all reasonable inference in the light most favorable to Mr. Brody."); id. at pp. zz, aaaddd (same); id. at p. zz ("Mr. Miller is without any expertise to review depositions and weigh witness credibility and his report should be stricken in that regard, especially as to the highly dubious witnesses."); id. at pp. ddd, 2 n. 26 (same); id. at pp. 14 n. 28, 15 ().
Mr. Brody did not file a Motion in Limine under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), or Federal Rule of Evidence 702. He did not participate in expert discovery. He did not file an opposing expert report. Instead, he offers unqualified, conclusory criticism by himself and his attorney. This is not sufficient to challenge the admissibility of Mr. Miller's report, and the court disregards his objections. (See also SEC's Reply Mem. (Docket # 936) at 98-101 ().)
Having ruled on Mr. Brody's objections, the court now sets forth the facts from the record.
In January 2002, the SEC brought this enforcement action against four corporate entities, as well as some principals of those entities (for example, Mr. Brody). Those corporate entities — collectively referred to as "Merrill Scott" — are Merrill Scott & Associates, Ltd. (MSAL), Merrill Scott & Associates, Inc. (MSAI), Phoenix Overseas Advisers, Ltd. ("Phoenix"), and Gibraltar Permanente Assurance, Ltd. ("Gibraltar").
In its complaint, SEC alleged that MSAL and its affiliated entities (MSAI, Phoenix, and Gibraltar), and certain of their principals, had misappropriated investor funds and were actively operating a Ponzi scheme4 (that is, they were using money obtained from new clients to pay obligations owing to other clients). A short time after the SEC filed its complaint, the court entered an order enjoining the defendants, freezing the assets of the Merrill Scott, and appointing David K. Broadbent as the receiver.5
The court recently issued a Partial Consent Judgment and Permanent Injunction against Merrill Scott. (See May 2, 2007 Order at 3 (Docket # 970).) Judgment has also been entered against Mr. Brody's individual co-defendants — Mr. Licopantis and. Mr. Ross.6 Mr. Brody is the only remaining defendant.
As for Mr....
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