Sec. & Exch. Comm'n v. De Binary

• Decision Date: 14 March 2014
• Docket Number: 2:13-cv-993-RCJ-VCF
• Parties: SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. BANC DE BINARY, et al., Defendants.
• Court: U.S. District Court — District of Nevada

SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. BANC DE BINARY, et al., Defendants.

2:13-cv-993-RCJ-VCF

UNITED STATES DISTRICT COURT DISTRICT OF NEVADA

DATED: March 14, 2014

ORDER

This matter involves the Security and Exchange Commission's civil enforcement action against Banc de Binary, et al. for allegedly trading unregistered securities in violation of Section 5 of the Securities Act, 15 U.S.C. §§ 77e and section 15(a)(1) of the Exchange Act of 1934, 15 U.S.C. § 78o(a)(1). (Second Amend. Compl. (#58) at ¶¶ 120-27¹). Before the court is the Commission's motion to compel, which requests an order requiring Cypriot, Israeli, and Seychellois Defendants to appear for depositions in Washington, D.C. (#52). In response, Banc de Binary requests a protective order that locates the depositions at Banc de Binary's principal place of business in Cyprus. (#46).

BACKGROUND²

Because the parties' motions require the court to select the venue for a series of depositions, the relevant facts include an overview of (1) Banc de Binary's affiliates and business activities and (2) the discovery dispute before the court. Both are discussed below.

I. Banc de Binary & Binary Options

Defendant Banc de Binary is a Cypriot corporation with a principal place of business on Cyprus' southern shore, in Limassol. (Summons (#58-1) at 1). It is affiliated with three other corporations, Defendants ET Binary Options Ltd., BO Systems, Ltd., and BDB Services, Ltd. (Second. Amend. Compl. (#58) at ¶¶ 4). Although Banc de Binary's affiliates are incorporated in Israel and the Republic of Seychelles, the companies collectively do business as "Banc de Binary." (Id. at ¶¶ 4, 13-15).

Banc de Binary was founded in 2010 by Defendant Oren Shabat Laurent, a twenty-nine year old American and Israeli citizen who lives on the outskirts of Tel Aviv. (Id. at ¶ 16); (Pl.'s Serv. Mot. (#43-1) at 3:10-11). He owns fifty percent of Banc de Binary, and is also the sole owner or fifty percent shareholder of ET Binary Options Ltd., BO Systems, Ltd., and BDB Services, Ltd. (Second. Amend. Compl. (#58) at ¶¶ 5, 18, 19, 31).

Banc de Binary operates an online trading platform where investors buy securities³ known as "binary options." (See id. at ¶¶ 33-43). Binary options are essentially fixed odds financial bets. See ABE COFNAS, TRADING BINARY OPTIONS 3 (2012) (comparing binary options to fix odds bets). When purchasing binary options, investors guess whether the value of a stock will increase or decrease. (Second. Amend. Compl. (#58) at ¶¶ 33-43). If the guess is correct, the investor receives a payout that is determined by the value of the underlying asset. (Id.) If the guess is incorrect, the investor gets nothing. (Id.) They are called binary options because these two returns are the only possible returns. (See id.)

Although Banc de Binary is licensed to operate in Cyprus under the supervision of the Cyprus Securities and Exchange Commission, it is not registered with the United States' Securities andExchange Commission and, therefore, not licensed to operate here. (Id. at ¶¶ 56, 79). Nonetheless, Banc de Binary has allegedly traded binary options in the United States since 2010 in violation of section 5 of the Securities Act, 15 U.S.C. §§ 77e and section 15(a)(1) of the Exchange Act of 1934, 15 U.S.C. § 78o(a)(1). (Id. at ¶¶ 120-27).

The Commission alleges that Banc de Binary had⁴ "extensive business" contacts in the United States. In 2012, fifty to sixty percent of its 250,000 investors were American. (Id. at ¶ 44). Other significant contacts included (1) representing itself as "headquartered in New York," (2) maintaining a "virtual" address on Wall Street, (3) advertising itself as having a "North American Brokerage Department" with offices at 40 Wall Street, Floor 28, New York, NY 10005, and (4) stating on its website that "[o]ur entire staff is located in the United States. We never outsource abroad and your information is secured in our US based server facilities." (Id.); (Pl.'s Mot. to Compel (#44-1) at 4:6-11). Additionally, one of Banc de Binary's brokers allegedly told investors that he lived within "walking distance of Wall Street."⁵ (Id.)

II. The Discovery Dispute: Picking a Deposition Location

The parties are currently in the midst of discovery. They cannot, however, agree on a location for the depositions of Banc de Binary and three of its officers and directors: Mr. Laurent, Uri Katz, and Yehezkel Shabat. (Id. at 4:22); (Pl.'s Notice of Mot. (#44) at 1:24-25).⁶ Several locations were considered: Cyprus and Israel, where Defendants reside, Washington, D.C., where the Commission is headquartered and Defense Counsel resides, Nevada, where this action is pending and additionalDefense Counsel resides, and even Los Angeles, where the Commission's attorneys reside. (Id.)

The distances between these locations are considerable. 6,999 miles, and ten time zones, separate Reno, Nevada, where the Honorable Robert C. Jones, U.S. District Judge sits, and Cyprus, which is Banc de Binary's principal place of business. Approximately 2,595 miles, and three time zones, separate Reno and Washington, D.C. And, approximately 5,663 miles, and seven time zones, separate Washington, D.C. and Cyprus.

Further complicating matters, Banc de Binary and Mr. Laurent refuse to appear for depositions anywhere in the United States. (Id. at 5:20). In addition to the expense involved with traveling to the United States, Mr. Laurent is concerned that Judge Jones' August 7, 2013 order noted that Defendants may be criminally liable under the federal RICO statute. See Banc de Binary, — F. Supp. 2d —, 2013 WL 4042280, at *n. 4.

Because the Commission could not resolve the matter during its various meet and confers with Banc de Binary, it filed the instant motion to compel on January 24, 2014. The Commission argues that the depositions should take place in Washington, D.C., as stated in the deposition notices. In response, Banc de Binary moved for a protective order, and requests that the depositions be noticed for Cyprus at Banc de Binary's principal place of business or Israel, where Mr. Laurent resides.

DISCUSSION

The parties' filings raise one question: whether the deposition of an overseas, corporate defendant should occur at the defendant's principal place of business or at the location noticed by the examining party. Before addressing this question, the court begins its analysis by reviewing the law governing the location of depositions involving defendants who live abroad.

I. Overseas Deponents & the Federal Rules of Civil Procedure

Federal Rule of Civil Procedure 30 governs depositions. Rule 30(b)(1) provides, "[a] party who wants to depose a person by oral questions . . . must state the time and place of the deposition." FED. R. CIV. P. 30(b)(1). Generally, this means that the examining party may unilaterally choose a deposition's location. CHARLES ALAN WRIGHT, ARTHUR R. MILLER & RICHARD L. MARCUS, FEDERAL PRACTICE & PROCEDURE: CIVIL § 2112 at 523 (3d ed. 2010); Cadent Ltd. v. 3M Unitek Corp., 232 F.R.D. 625, 628 (C.D. Cal. 2005).

However, the examining party's discretion to choose a location is limited. First, Rule 26(c) empowers courts to shield deponents "from annoyance, embarrassment, oppression, or undue burden or expense." FED. R. CIV. P. 26(c). This rule grants district courts "wide discretion" to establish a deposition's location. Hyde & Drath v. Baker, 24 F.3d 1162, 1166 (9th Cir. 1994) (citing In re Standard Metals Corp., 817 F.2d 625, 628 (10th Cir. 1987)).

Second, there is a rebuttable presumption that a corporation's deposition should be taken at the corporation's principal place of business.⁷ WRIGHT & MILLER, supra, at § 2112 at 533; Thomas v. Int'l Bus. Machines, 48 F.3d 478, 483 (10th Cir. 1995); Salter v. Upjohn Co., 593 F.2d 649, 651 (5th Cir. 1979); Cadent, 232 F.R.D. at 628. When a foreign defendant is involved, this presumption may be even stronger. Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522, 546 (1987); In re Outsidewall Tire Litig., 267 F.R.D. 466, 471 (E.D. Va. 2010). But, this rule is not—(and never was)—"invariable." Hirsch v. Glidden Co., 79 F. Supp. 729, 730 (S.D.N.Y. 1948) (permitting a deposition near the defendant's satellite office if the examining party pays the deponent's traveling expenses and hotel bill); Gitto v. "Italia", Societa Anonima Di Navigazione, Genova, 28 F.Supp. 309, 310 (E.D.N.Y. 1939) (modifying the general rule to avoid undue expense).

The Federal Rules of Civil Procedure are otherwise silent with regard to choosing a deposition's location. Outsidewall, 267 F.R.D. at 471. Where, as here, there is no place that appears convenient for the parties, the task of deciding the proper location falls on the court. Id.; Societe Nationale, 482 U.S. at 546 ("We do not articulate specific rules to guide this delicate task of adjudication."). In developing this standard, courts consider whether "circumstances exist distinguishing the case from the ordinary run of civil cases." Outsidewall, 267 F.R.D. at 471 (citing Salter, 593 F.2d at 651-52); Hyde & Drath, 24 F.3d at 1166.

When making this determination courts in the Ninth Circuit⁸ apply a five-factor test (the Cadent factors): (1) the location of counsel for the parties in the forum district; (2) the number of corporate representatives a party is seeking to depose; (3) the likelihood of significant discovery disputes arising which would necessitate-resolution by the forum court; (4) whether the persons sought to be deposed often engage in travel for business purposes; and (5) the equities with regard to the nature of the claim and the parties' relationship. Cadent, 232 F.R.D. at 629.

This, however, is not the only test. When considering where to locate the deposition of a defendant residing overseas, courts have also considered its ability to supervise depositions and resolve discovery disputes. Afram Exp. Corp. v. Metallurgiki Halyps, S.A., 772...