Sec. & Exch. Comm'n v. Eagleeye Asset Mgmt., LLC

• Decision Date: 04 October 2013
• Docket Number: Civil Action No. 11–11576–WGY.
• Citation: 975 F.Supp.2d 151
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. EAGLEEYE ASSET MANAGEMENT, LLC, and Jeffrey A. Liskov, Defendants.
• Court: U.S. District Court — District of Massachusetts

975 F.Supp.2d 151

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.EAGLEEYE ASSET MANAGEMENT, LLC, and Jeffrey A. Liskov, Defendants.

Civil Action No. 11–11576–WGY.

United States District Court, D. Massachusetts.

Oct. 4, 2013.

Deena R. Bernstein, Martin F. Healey, Naomi J. Sevilla, U.S. Securities & Exchange Commission, Boston, MA, for Plaintiff.

Jennifer Mikels, Albert P. Zabin, Duane Morris LLP, Boston, MA, for Defendants.

MEMORANDUM

YOUNG, District Judge.

I. INTRODUCTION

This case illustrates the value of a jury trial in an adjudicatory system apparently devoted almost entirely to efficiency. Its broad outlines are briefly limned. The well-prepared plaintiff brought a motion for summary judgment. Its outcome was all but a foregone conclusion and it was supported by a decision in this district in closely analogous circumstances. This Court denied summary judgment. A costly and inefficient (at least compared to summary judgment) nine-day jury trial ensued. The jury returned a carefully nuanced verdict that necessarily addressed and resolved an issue that transcends in significance the dispute between these particular parties. I would argue that this is the proper procedural course.¹ Others may disagree.² The facts speak for themselves.

II. BACKGROUND

On September 8, 2011, the Securities and Exchange Commission (the “SEC”) brought this civil complaint against EagleEye Asset Management, LLC (“EagleEye”) and Jeffrey A. Liskov (“Liskov”).³ Compl., ECF No. 1. The SEC alleged that Liskov violated section 10(b) of the Securities Exchange Act of 1934 (“section 10(b)” of the “Exchange Act”), 15 U.S.C. § 78j(b), and rule 10b–5 thereunder (“rule 10b–5”), 17 C.F.R. § 240.10b–5, that he violated sections 206(1) and 206(2) of the Investment Advisers Act (“section 206(1)” and “section 206(2)” of the “Advisers Act”), 15 U.S.C. §§ 80b–6(1), (2), and that he violated Section 204 of the Advisers Act, 15 U.S.C. § 80b–4, and Rules 204–2(a)(1)–(6) and 204–2(a)(8) thereunder, 17 C.F.R. §§ 275.204–2(a)(1)–(6), (8). See Compl. ¶¶ 63–93. The SEC requested that this Court permanently enjoin Liskov from engaging in such conduct, require Liskov to disgorge ill-gotten gains, and order him to pay a penalty. See id. ¶¶ A–C.

On June 15, 2012, the SEC moved for summary judgment. SEC's Mot. Summ. J., ECF No. 26; SEC's Mem. Law Supp. Mot. Summ. J. (“SEC's Mem.”), ECF No. 27; Pl. SEC's Local R. 56.1 Statement Undisputed Material Facts (“SEC's Statement”), ECF No. 28. Liskov opposed the motion while denying many of the SEC's allegations. Defs.' Br. Opp'n Pl.'s Mot. Summ. J. (“Liskov's Opp'n”), ECF No. 45; Mot. Defs. Leave File Corrected Counter Statement Facts Dispute, Attach., Counter Statement Defs. Liskov & EagleEye Asset Mgm't LLC, Pursuant Local R. 56.1 (Corrected), ECF No. 37. The Court heard oral argument on September 19, 2012, and denied summary judgment. Tr. Mot. Hr'g, Sept. 19, 2012, ECF No. 54.

The case proceeded to a nine-day jury trial, held between November 5, 2012, and November 26, 2012. Elec. Clerk's Notes, Nov. 5, 2012, ECF No. 75; Elec. Clerk's Notes, Nov. 26, 2012, ECF No. 110. The jury found that Liskov had, as to various victims, intentionally or recklessly misrepresented material facts in violation of the Advisers Act, had fraudulently misrepresented material facts with intent to deceive in connection with the sale of a security, in violation of the Exchange Act, had violated the Exchange Act by fraudulently failing, in connection with the sale of a security, to disclose his forex ⁴ trading record, and had intentionally engaged in a scheme to defraud in connection with the sale of a security, in violation of the Exchange Act. See Jury Verdict, ECF No. 111.

At the end of an oral hearing held December 11, 2012, regarding remedies, this Court imposed an order including a permanent injunction, disgorgement, and fines. See Hearing Tr. 30:9–31:1, Dec. 11, 2012, ECF No. 125. This order was memorialized in a final judgment as to both defendants the following day. Final Judgment Both Defs., ECF No. 124. This order completed proceedings, and the case was terminated on December 13, 2012.

This memorandum explicates three useful and necessary things. First, this Court will explain its view on the use of summary judgment and on why it denied summary judgment in this case (necessitating the nine-day trial) despite the overwhelming evidence proffered at that stage by the SEC. Second, the Court wishes to alert those regulated by the Exchange Act of the most significant implication of the jury verdict here. Finally, it is only fitting that the Court explain its reasoning for selecting the final judgment imposed in this case.

III. ANALYSISA. Despite Overwhelming Supporting Evidence, Summary Judgment for the SEC Was Inappropriate Where the Burden Is on the SEC to Prove Scienter or Negligence

Summary judgment is overused across our courts.⁵See Mark W. Bennett, From the “No Spittin', No Cussin', and No Summary Judgment” Days of Employment Discrimination Litigation to the “Defendants' Summary Judgment Affirmed Without Comment” Days: One Judge's Four–Decade Perspective, 57 N.Y.L. Sch. L.Rev. 685, 686 (2012–2013); Arthur R. Miller, The Pretrial Rush to Judgment: Are the “Litigation Explosion,” “Liability Crisis,” and Efficiency Clichés Eroding Our Day in Court and Jury Trial Commitments?, 78 N.Y.U. L.Rev. 982, 1133 (2003); Patricia Wald, Summary Judgment at Sixty, 76 Tex. L.Rev. 1897, 1898 (1998) (“[S]ummary judgment has assumed a much larger role ... than its traditional image portrays or even than the text of Rule 56 would indicate, to the point where fundamental judgments about the value of trials and especially trials by jury may be at stake.”); see also Suja A. Thomas, Why Summary Judgment Is Unconstitutional, 93 Va. L.Rev. 139, 139–40 (2007). But see Edward Brunet, Summary Judgment Is Constitutional, 93 Iowa L.Rev. 1625 (2008). Summary judgment is appropriate only where the materials in the record show that there is “no genuine dispute as to any material fact”. Fed.R.Civ.P. 56(a). When ruling on a summary judgment motion, the trial court must view the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of the nonmoving party. Pineda v. Toomey, 533 F.3d 50, 53 (1st Cir.2008). If there is a sufficient evidentiary basis on which the trier of fact could find for the nonmoving party, then a genuine issue of fact exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The measure of materiality is whether the “material” fact will affect the outcome of the case under the applicable law. See id. at 248, 106 S.Ct. 2505. The burden is on the moving party to show that no genuine issue of material fact exists. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Because our justice system leaves credibility determinations for a jury, not a judge, see Anderson, 477 U.S. at 255, 106 S.Ct. 2505, when reviewing the record, the court “must disregard all evidence favorable to the moving party that the jury is not required to believe.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 151, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). Courts may base grants of summary judgment only on facts admitted by both parties and must disregard all evidence, even if unopposed, which the jury is free to reject. Courts cannot grant summary judgment on an issue on which the moving party bears the burden if the moving party relies on evidence that the jury could disbelieve even where the nonmoving party has presented no contrary evidence.⁶

This Court adheres meticulously to the standard set forth in Reeves, where the Supreme Court reviewed the Fifth Circuit's reversal of a jury verdict in an age discrimination case. Id. at 139–140, 120 S.Ct. 2097. That “case consist[ed] exclusively of a prima facie case of discrimination and sufficient evidence for the trier of fact to disbelieve the defendant's legitimate, nondiscriminatory explanation for its action.” Id. at 137, 120 S.Ct. 2097. A jury, disbelieving the defendant's explanation for the termination, found it liable. See id. at 138–39, 120 S.Ct. 2097.

While Reeves focused on the standard for judgment as matter of law, the Supreme Court made clear that it was basing its decision on the standard for granting summary judgment. See id. at 150, 120 S.Ct. 2097 (noting that “the standard for granting summary judgment ‘mirrors' the standard for judgment as a matter of law, such that ‘the inquiry under each is the same.’ ” (quoting Anderson, 477 U.S. at 250–51, 106 S.Ct. 2505)).

Where differences between these two standards occur, the standard for granting summary judgment is more exacting than the standard for granting judgment as matter of law. After all, judgment as matter of law comes after a trial allowing the impeachment of evidence while nonmoving parties do not have the full ability to impeach testimony before the summary judgment stage. See Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (“We do not mean that the nonmoving party must produce evidence in a form that would be admissible at trial in order to avoid summary judgment.”). Thus, while in Reeves the Supreme Court stated that courts should credit “evidence supporting the moving party that is uncontradicted and unimpeached, at least to the extent that that evidence comes from disinterested witnesses,” 530 U.S. at 151, 120 S.Ct. 2097 (internal quotation marks omitted) (quoting 9A C. Wright & A. Miller, Federal Practice and Procedure § 2529, p. 300 (2d ed.1995)), at summary judgment, courts must ignore even uncontradicted evidence from disinterested witnesses where there is some question whether this evidence may be impeached.

In the present case, the SEC moved for offensive summary judgment. Thus, the burden of proof for all elements of all claims was on the SEC.

Claims under section 10(b) and rule 10b–5 have six elements: (1)...