Sec. & Exch. Comm'n v. Arias
| Decision Date | 09 February 2023 |
| Docket Number | 12-CV-2937 (RPK) (SIL) |
| Parties | SECURITIES AND EXCHANGE COMMISSION and UNITED STATES OF AMERICA, Plaintiffs, v. BRYAN ARIAS, HUGO A. ARIAS, ANTHONY C. CICCONE, SALVATORE CICCONE, DIANE KAYLOR, JASON A. KERYC, ANTHONY MASSARO, CHRISTOPHER E. CURRAN, RYAN K. DUNASKE, MICHAEL P. DUNNE, MARTIN C. HARTMANN, III, MICHAEL D. KERYC, RONALD R. ROALDSEN, Jr., and LAURA ANN TORDY, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Having obtained judgment against defendants who ran a Ponzi scheme the Securities and Exchange Commission (“SEC”) moves for damages against six of them (the “motion defendants”). In a report and recommendation ( ), Magistrate Judge Locke recommended damages consisting of disgorgement, prejudgment interest, and civil penalties. Five of the motion defendants filed timely objections. For the reasons that follow, the R. & R. is adopted in full.
I assume the parties' familiarity with the prior proceedings. The following facts come from the complaint which defendants have stipulated “shall be accepted as and deemed true” on a motion for disgorgement prejudgment interest, and civil penalties. Judgment as to Michael D. Keryc ¶ 5 (Dkt. #75); accord Judgment as to Christopher E. Curran ¶ 3 (Dkt. #87); Judgment as to Michael P. Dunne ¶ 5 (Dkt. #89); Judgment as to Ronald R. Roaldsen, Jr. ¶ 3 (Dkt. #92); Judgment as to Ryan K. Dunaske ¶ 3 (Dkt. #95); Judgment as to Salvatore Ciccone ¶ 5 (Dkt. #113) (collectively, “Judgments”).
Motion defendants Salvatore Ciccone, Christopher E. Curran, Ryan K. Dunaske, Michael P. Dunne, Michael D. Keryc, and Ronald R. Roaldsen, Jr. participated in the Agape World, Inc. (“Agape”) Ponzi scheme run by Nicholas J. Cosmo. Compl. ¶¶ 1-2 (Dkt. #1). Before it collapsed, this Ponzi scheme collected approximately $415 million from over 5,000 investors, including 1,000 in Long Island. Id. ¶ 1. Ciccone worked as a broker for Agape. Id. ¶ 2. Curran, Dunaske, Dunne, Michael Keryc, and Roaldsen worked as “sub-brokers.” Ibid. All motion defendants sold investment contracts that falsely represented that the investors' funds were being used in high-interest, low-risk bridge loans. Id. ¶¶ 33-35. In addition, Dunne and Michael Keryc sold these securities knowing of, or recklessly disregarding, the false statements contained in the instruments, and also encouraged investors to roll interest and principal back into the scheme. Id. ¶ 45. Each motion defendant sold Agape securities to at least seventy investors, and Ciccone sold Agape securities to at least 348. Id. ¶¶ 18, 22-24, 26-27. At least two, Curran and Dunne, were affiliated with registered broker-dealers prior to the scheme, id. ¶¶ 22, 24, and all six incorporated companies to facilitate their sales, id. ¶¶ 18, 22-24, 26-27. At no time during the scheme were the motion defendants or the Agape securities registered with the SEC. Id. ¶ 8. When the scheme began to unravel, all of the motion defendants received internal communications reflecting Cosmo's criminal history and the Ponzi scheme's deteriorating financial situation. Id. ¶¶ 67 (); 73-74 (emails concerning Agape's situation forwarded from broker Jason Keryc to his sub-brokers, who included Curran, Dunaske, Dunne, Michael Keryc, and Roaldsen); 75 (same); 79-80 (same); 81 (same); 8789 (same); 92 (same).
The SEC brought suit against defendants on June 12, 2012. See Compl. The complaint charged Ciccone, Dunne, and Michael Keryc with violating (i) Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Compl. ¶¶ 106-08; and (ii) Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, Compl. ¶¶ 109-11. In addition, the SEC charged all six motion defendants with violating (iii) Section 15(a) of the Exchange Act, 15 U.S.C. § 78c(a)(1), Compl. ¶¶ 112-15, and (iv) Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c), Compl. ¶¶ 116-19.
The motion defendants accepted judgments against them. See Judgments. These judgments provided that “[u]pon motion of the Commission, the Court shall determine whether it is appropriate to order disgorgement” or “a civil penalty,” and, “if so, the amount(s) of the disgorgement and/or civil penalty.” Ibid. Moreover, the judgments provided that “[i]f disgorgement is ordered,” defendants “shall pay prejudgment interest thereon” based on the rate of interest the Internal Revenue Service applies to underpayment of federal income tax. Ibid. These judgments also barred the motion defendants from arguing that they did not violate “federal securities laws as alleged in the Complaint,” and provided that for the purposes of a motion for disgorgement or civil penalties, “the allegations of the Complaint shall be accepted as and deemed true by the Court.” Ibid.
The SEC has now moved for disgorgement, civil penalties, and prejudgment interest against all motion defendants. See Mot. for Damages (Dkt. #132). Upon referral from then-presiding Judge Brodie, Magistrate Judge Locke issued an R. & R. recommending an award of disgorgement, civil penalties, and prejudgment interest against all six motion defendants. See R. & R. (Dkt. #142). Defendants Curran, Dunne, Michael Keryc, and Roaldsen filed objections, as did Dunaske, who alone is proceeding pro se. See Curran Objections (Dkt. #144); Dunne Objections (Dkt. #145); Dunaske Objections (Dkt. #146); Keryc & Roaldsen Objections (Dkt. #147). On March 28, 2022, I adopted the R. & R. as to defendant Ciccone and directed supplemental briefing. See Mar. 28, 2022 Order.
The R. & R. is now pending as to defendants Curran, Dunaske, Dunne, Michael Keryc, and Roaldsen. It recommends disgorgement of $208,933.52 against Curran, $214,444.92 against Dunaske, $845,409.43 against Dunne, $809,485.17 against Michael Keryc, and $253,745.80 against Roaldsen. R. & R. 17. It also recommends prejudgment interest of $53,788.01 against Curran, $55,206.91 against Dunaske, $217,642.96 against Dunne, $208,394.60 against Michael Keryc, and $65,324.55 against Roaldsen. Id. at 18. Finally, the R. & R. recommends imposing one-time second-tier civil penalties of $65,000 against Curran, Dunaske, and Roaldsen, and onetime third-tier civil penalties of $130,000 against Dunne and Michael Keryc. Id. at 26.
The standard of review a district court should use when considering an order or recommendation from a magistrate judge depends on whether the issue “is dispositive of a party's claim or defense.” Fed.R.Civ.P. 72(a); see 28 U.S.C. § 636(b)(1). If a party timely objects to a magistrate judge's recommendation on a dispositive issue, then the district court must “determine de novo” those parts of the ruling that have been “properly objected to.” Fed.R.Civ.P. 72(b)(3); see 28 U.S.C. § 636(b)(1)(C). The SEC's motion for disgorgement prejudgment interest, and civil penalties is a dispositive matter under Rule 72. See, e.g., SEC v. Nadel, 206 F.Supp.3d 782, 784 (E.D.N.Y. 2016); SEC v. Syndicated Food Serv. Int'l., Inc., No. 4-CV-1303 (NGG) (VLS), 2014 WL 1311442, at *1-2 (E.D.N.Y. Mar. 28, 2014); SEC v. One Wall St., Inc., No. 6-CV-4217 (NGG) (ARL), 2008 WL 5082294, at *1 (E.D.N.Y. Nov. 26, 2008).
Those parts of an R. & R. that are uncontested or are not properly objected to may be reviewed, at most, for “clear error.” Alvarez Sosa v. Barr, 369 F.Supp. 3d 492, 497 (E.D.N.Y. 2019) (citation omitted); see Nelson v. Smith, 618 F.Supp. 1186, 1189 (S.D.N.Y. 1985) (citing Fed.R.Civ.P. 72(b) advisory committee's note to 1983 addition). Clear error will only be found if after reviewing the entire record, the court is “left with the definite and firm conviction that a mistake has been committed.” United States v. Bershchansky, 788 F.3d 102, 110 (2d Cir. 2015) (citation omitted).
In considering objections to an R. & R., the district court “will not consider new arguments raised in objections to a magistrate judge's report and recommendation that could have been raised before the magistrate but were not.” United States v. Gladden, 394 F.Supp.3d 465, 480 (S.D.N.Y. 2019) (citation omitted); see, e.g., Fischer v. Forrest, 968 F.3d 216, 221 (2d Cir. 2020); 12 Charles Alan Wright & Arthur R. Miller, Fed. Prac. and Proc. § 3070.2 (3d ed. 2021). “Further, courts generally do not consider new evidence raised in objections to a magistrate judge's report and recommendation.” Lesser v. TD Bank, N.A., 463 F.Supp.3d 438, 445 (S.D.N.Y. 2020) (alteration, quotation marks, and citation omitted); see, e.g., Hynes v. Squillace, 143 F.3d 653, 656 (2d Cir. 1998); Paddington Partners v. Bouchard, 34 F.3d 1132, 1137-38 (2d Cir. 1994); Pan Am. World Airways, Inc. v. Int'l Bhd. of Teamsters, 894 F.2d 36, 40 n.3 (2d Cir. 1990). Finally, a court will disregard an objection that “merely restates or rehashes the same arguments that [the] party originally made” if it fails to identify any subsequent errors in the magistrate's analysis. CDS Bus. Servs., Inc. v. H.M.C., Inc., No. 19-CV-5759 (JMA) (SIL), 2021 WL 4458884, at *1 (E.D.N.Y. Sept. 28, 2021); see Sunoco, Inc. v. 175-33 Horace Harding Realty Corp., No. 11-CV-2319 (JS) (GRB), 2016 WL 5239597, at *2 (E.D.N.Y. Sept. 22, 2016), aff'd sub nom. Sunoco, Inc. (R&M) v. 175-33 Horace Harding Realty Corp., 697 Fed.Appx. 38 (2d Cir. 2017); Trustees of Loc. 7 Tile Indus. Welfare Fund v. Gibraltar Contracting, Inc., No. 18-CV-3042 (RRM) (RER), 2021 WL 1207123, at *5 (E.D.N.Y. Mar. 31, 2021); Pacheco v. Chickpea at 14th St. Inc., No. 18-CV-251 (JMF), 2019 WL 3554460, at *1 (S.D.N.Y. Aug. 5, 2019).
The objections of a pro se defendant, as with all pro se submissions, are “construed liberally...
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