Sec. & Exch. Comm'n v. Amerindo Inv. Advisors Inc., 05-cv-5231 (RJS)
| Decision Date | 14 July 2017 |
| Docket Number | No. 05-cv-5231 (RJS),05-cv-5231 (RJS) |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. AMERINDO INVESTMENT ADVISORS INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Now before the Court are: (1) the motion of the Court-appointed Receiver Ian J. Gazes (the "Receiver") for an order directing a fourth interim distribution to the approximately 40 entities and individuals who invested with Defendants and are authorized to recover from the Receiver (the "Allowed Investors") (Doc. No. 640), and (2) a request by Defendants to vacate the prior judgments in this case in light of the Supreme Court's recent decision in Kokesh v. SEC, 137 S. Ct. 1635 (2017). (Doc. No. 665). For the reasons set forth below, the Court directs the Receiver to distribute an inflation adjustment to the Allowed Investors totaling $13,849,639.27 (the "Inflation Adjustment Distribution") in the amounts set forth in the attachment to this Order. The Court also denies Defendants' request for vacatur under Rule 60(b).
The Court assumes the parties' familiarity with the facts and procedural history of this case, which are set forth in numerous prior orders (see, e.g., Doc. Nos. 272, 348, 432, 510, 618), as well as the Second Circuit's opinion affirming the final judgments, SEC v. Amerindo Inv. Advs., 639 F. App'x 752 (2d Cir.), cert. denied, 136 S. Ct. 2429 (2016). Accordingly, the Court will provide only background necessary to decide the instant motion.
On October 17, 2012, the Court appointed the Receiver to investigate and determine the value of investor assets held by Defendants and to establish a claims and interim distribution process for investors victimized by Defendants' scheme to defraud. (Doc. Nos. 267, 291.) The Court has previously fixed the Allowed Investors' claims and approved three interim distributions in orders dated May 6, 2014, December 31, 2014, and May 20, 2016, which collectively totaled $54,404,467.83. (Doc. Nos. 432, 510, 618.) These first three distributions reflected the payment of principal only, with no adjustment for inflation, interest, or appreciation, and employed a payment method based on the Allowed Investors' net contributions (the "NCA Method") whereby (1) claims for funds invested in Defendants' Guaranteed Fixed Rate Deposit Accounts ("GFRDA") were assessed at the amount set forth in the last account statement minus subsequent distributions, and (2) claims for funds invested in the Amerindo Technology Growth Fund ("ATGF") were assessed at the amount of the initial investment minus subsequent distributions, or, if the initial investment amount could not be determined, at the amount set forth in the last available account statement amount minus subsequent distributions. (Doc. No. 618 at 2.)
Due to the Receiver's commendable efforts, all Allowed Investors have recovered their principal claim amounts before interest, appreciation, or inflation, and as of September 30, 2016, the Receiver held an additional $24,387,214 in assets. (Doc. No. 640 at 3-4.) On January 30, 2017, the Receiver proposed distributing $20 million of these assets while maintaining a reserve of approximately $4 million in order to pursue outstanding Receivership Assets. (Id. at 5.) Specifically, the Receiver proposed distributing to each Allowed Investor a portion of the $20 million based on each investor's pro rata share of the previous three distributions. (Id. at 5; see also Doc. No. 641-1 at 2.) The Receiver also attached a series of alternative proposals for the Court's consideration, including an inflation adjustment that the Receiver at that time calculated would result in a distribution of $19.975 million. (Doc. No. 641-1 at 8.)
The Court thereafter received objections and alternative proposals from: (1) claimants Paul Marcus, the Deane J. Marcus Trust, the Steven E. Marcus Trust, the Cheryl Marcus-Podhaizer Trust, and the Eve S. Marcus Children's Trust (the "Marcus Claimants") on February 13, 2017 (Doc. No. 645), and (2) claimants Lisa and Debra Mayer (the "Mayer Claimants") on February 27, 2017 (Doc. No. 651). On February 27, 2017, the Court also received objections from Defendants. (Doc. No. 652.)
On February 28, 2017, the Securities and Exchange Commission ("SEC") filed a partial objection to the Receiver's proposal. Specifically, the SEC asserted that the Receiver should be authorized "to make the Fourth Interim Distribution using a consistent inflation adjustment or interest component applied to each allowed claim." (Doc. No. 655.) The SEC distinguished between authorization of a pro rata distribution of profits over the principal amount of the victims' investments, on the one hand, and the payment of an inflation adjustment or interest component on the Allowed Investors' principal, on the other. (See id. at 655 at 2 & n.2 (emphasis added).) The SEC opined that "payment of an inflation adjustment or an interest component on the [A]llowed [I]nvestor claims is consistent with existing law," while it is "unclear whether profits on a defendant's ill-gotten gain . . . can be paid to harmed investors." (Id. () Therefore, the SEC requested that the Court authorize payment of "a consistent inflation adjustment or interest component to all claimants" rather than "determine how to allocate profits, if any, at this time." (Id. at 4.)
On April 14, 2017, the Receiver submitted a revised proposal (the "Federal Underpayment Rate Proposal") in which he agreed with the SEC's recommendation and requested authorization to pay an interest adjustment on the Allowed Investors' principal calculated at the federal underpayment rate established under Section 6621(a)(2) of the Internal Revenue Code (the"Federal Underpayment Rate"). (Doc. No. 663.) The Receiver estimated that, pursuant to the Federal Underpayment Rate, the Allowed Investors would be entitled to approximately $34 million, and he requested authorization to distribute $20 million of the remaining $24 million in Receivership Assets as a partial payment on that interest with the balance of approximately $14 million to be paid to the Allowed Investors at a future date, if and when it was recovered by the Receiver.
Since that time, the Receiver has, at the Court's direction, calculated an inflation adjustment for each investor based on the Consumer Price Index ("CPI") published by the Bureau of Labor Statistics. In contrast to the inflation adjustment set forth in the Receiver's January 30, 2017 proposal, which contemplated a distribution of $19.975 million (Doc. No. 640-1 at 8), the Inflation Adjustment Distribution attached to this Order properly adjusts for the previous payments of principal received by the Allowed Investors in the first three interim distributions (see Doc. Nos. 432, 510, 618) and totals nearly $14 million.
"[A]s part of their broad power to remedy violations of federal securities laws," "district courts may appoint receivers." SEC v. Byers, 609 F.3d 87, 92 (2d Cir. 2010). "[A] federal receiver is appointed, under the district court's broad equitable discretion, 'to restore to . . . defrauded [investors]'" funds that were "'fraudulently diverted from . . . their custody and control.'" SEC v. Malek, 397 F. App'x 711, 713 (2d Cir. 2010) (quoting SEC v. Shiv, 379 F. Supp. 2d 609, 618 (S.D.N.Y. 2005)); see also Walsh, 712 F.3d at 749 (). "District courts have discretion to approve a receiver's proposed distribution plan as long as the plan is 'fair and reasonable.'" SEC v. Amerindo Inv. Advs., No. 05-cv-5231(RJS), 2014 WL 2112032, at *14 , aff'd, 639 F. App'x 752 (2d Cir. 2016) (). "In making[] its decision, a court may defer to the receiver's choices for the plan's details and should give substantial weight to the SEC's views regarding a plan's merits." Id. at *14; accord Byers, 637 F. Supp. 2d at 175 (citing Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 34 n. 6 (2d Cir. 2005), vacated on other grounds, 547 U.S. 71 (2006)).
The Court finds that the Inflation Adjustment Distribution is fair and reasonable. It is elementary economics "that inflation diminishes the real value of money over time." United States v. Root, 585 F.3d 145, 154 n.6 (3d Cir. 2009); Procter & Gamble Distrib. Co. v. Sherman, 2 F.2d 165, 166 (S.D.N.Y. 1924) (L. Hand, J.) ( . Furthermore, the Court finds that the Receiver's decision to use the CPI to calculate inflation is appropriate. As the Second Circuit has recognized, the CPI is "perhaps the leading indicator of inflation." Doca v. Marina Mercante Nicaraguense, S.A., 634 F.2d 30, 36 (2d Cir. 1980); see also, e.g., Sprinkle v. Colvin, 777 F.3d 421, 428 (7th Cir. 2015) (); Lair v. Bullock, 697 F.3d 1200, 1213 (9th Cir. 2012) (); Harris v. Sullivan, 968 F.2d 263, 265 (2d Cir. 1992) ().
The Court also finds that the Inflation...
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