Sec. & Exch. Comm'n v. Bronson

• Decision Date: 29 April 2022
• Docket Number: 12-CV-6421 (KMK)
• Citation: 602 F.Supp.3d 599
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Edward BRONSON, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

602 F.Supp.3d 599

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Edward BRONSON, et al., Defendants.

No. 12-CV-6421 (KMK)

United States District Court, S.D. New York.

Signed April 29, 2022

Andrew Matthew Calamari, Esq., Christopher John Dunnigan, Esq., Maureen Peyton King, Esq., Marsha Catherine Massey, Esq., Kevin Patrick McGrath, Esq., Wendy Beth Tepperman, Esq., Judith Ann Weinstock, Esq., United States Securities & Exchange Commission, New York, NY, Washington, DC, Counsel for Plaintiff.

Paul Andrew Rachmuth, Esq., Rockville Centre, NY, Counsel for Defendants.

Ryan Dwight O'Quinn, Esq., DLA Piper LLP, Miami, FL, Counsel for Defendants.

OPINION & ORDER

KENNETH M. KARAS, District Judge:

The United States Securities and Exchange Commission ("SEC" or "Plaintiff") brought this Action against Edward Bronson ("Bronson") and his firm, E-Lionheart Associates, LLC ("E-Lionheart"), alleging violations of securities registration requirements under §§ 5(a) and 5(c) of the Securities Act of 1933, 15 U.S.C. §§ 77e(a) and 77e(c). (See Compl. (Dkt. No. 1).) The SEC also asserted a claim for unjust enrichment against Fairhills Capital, Inc. ("FCI" or "Relief Defendant"; together with Bronson and E-Lionheart, "Defendants"). (Id. ) On June 8, 2017, the Court entered a Final Judgment against Defendants. (See Final J. (Dkt. No. 186).)¹ On January 19, 2021, after Bronson failed to pay anything toward the Final Judgment, the Court issued a Contempt Order against Bronson. (See Dkt. No. 223.) On November 24, 2021, the Court issued another Contempt Order and delineated a payment plan for late 2021 and early 2022. (Dkt. No. 302). And on January 27, 2022, and January 28, 2022, the Court issued additional Contempt Orders regarding Bronson's failure to meet the payment requirements and directed that Bronson be taken into custody (together, the "Contempt Orders"). (Dkt. Nos. 318, 321).

Before the Court are: (1) Bronson's Motion for Relief from the June 8, 2017, Final Judgment (the "Final Judgment Motion"), (see Not. of Mot. (Dkt. No. 300)), and (2) Bronson's Motion for Relief from the Contempt Orders (the "Contempt Motion"), see Not. of Mot. (Dkt. No. 336) (collectively, the "Motions"), both pursuant to Federal Rule of Civil Procedure 60(b).² For the reasons explained below, the Motions are denied.

I. Background

On August 12, 2012, the SEC filed its Complaint, alleging that Bronson and E-Lionheart reaped approximately $10 million in unlawful profits from selling shares they bought at deep discounts from approximately 100 penny stock companies. (See Compl. ¶¶ 10–31.) The Complaint also alleged that FCI, of which Bronson was the owner and President, received at least $600,000 in proceeds from the illegal stock sales that Bronson transferred to FCI. (Id. ¶¶ 9, 32–36.)

Defendants’ scheme, in essence, was to buy shares of penny stocks at a discounted rate and quickly resell those shares to the public in violation of applicable registration and resale restrictions. (Op. & Order Denying Defs.’ Mot. To Dismiss ("MTD Op.") 2 (Dkt. No. 21).) To effectuate their scheme, Defendants would "cold call[ ]" companies and offer to purchase their securities at a steep discount from the market rate. (Compl. ¶ 15; Op. & Order Granting Pl.’s Mot. for Summ. J. ("Summ. J. Op.") 2 (Dkt. No. 178).) If the company expressed interest in the offer, Defendants would provide the company's transfer agent with an opinion letter stating that the securities were exempt from registration under Regulation D of the Securities Act and Delaware state law. (Summ. J. Op. 6; MTD Op. 3–4.) This purported exemption allowed Defendants to bypass restrictions on the resale of stock. Thus, having acquired a company's stock at a discount, Defendants would turn a profit by immediately reselling the stock to the public at the prevailing market rate. (Summ. J. Op. 8; MTD Op. 2–3, 4.)

On March 27, 2017, this Court granted Summary Judgment in favor of the SEC, concluding that the securities were not exempt from registration. (See Summ. J. Op. 18–25.)³ Although Defendants purported to rely on Rule 504(b)(1)(iii) of Regulation D, which requires in relevant part that offers or sales of securities be made "exclusively according to state law exemptions from registration," the state-law exemption on which Defendants relied—Delaware Securities Act § 73-207(b)(8)—applies "only where there is a sufficient nexus between Delaware and the transaction at issue," (Summ. J. Op. 19 (citation and internal quotation marks omitted)). The Court concluded that such a nexus was lacking, (see id. at 19–23), and, in response to Defendants’ argument that "parties may choose the law governing their ... securities transactions," the Court further concluded that "Defendants [could not] artificially select a particular state's security laws [to] evad[e] the registration requirements of the federal securities laws where the transactions at issue have no connection to that state," (id. at 23, 25). On April 26, 2017, Defendants filed a Notice of Appeal from the Court's March 27, 2017 Opinion & Order. (Dkt. No. 181.) On May 26, 2017, the Second Circuit denied the appeal as being in default. (Dkt. No. 187.)

On June 8, 2017, the Court entered Final Judgment against Defendants: (i) permanently enjoining Defendants from violating § of the Securities Act of 1933 and 15 U.S.C. § 77e ; (ii) permanently barring Defendants from participating in any offering of penny stock, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock; (iii) ordering Bronson, E-Lionheart Associates, and FCI jointly and severally liable for disgorgement of $9,355,271.79 and prejudgment interest thereon in the amount of $2,177,100.59; and (iv) ordering Bronson liable for a civil penalty in the amount of $150,000 and E-Lionheart liable for a civil penalty in the amount of $725,000. (See Final J. 4). On July 5, 2017, Defendants filed a Notice of Appeal to the Second Circuit from the Court's Final Judgment. (Dkt. No. 189.)

On August 28, 2017, this Court entered an Amended Final Judgment: (i) permanently enjoining Defendants from violating § 5 of the Securities Act of 1933 and 15 U.S.C. § 77e ; (ii) permanently barring Defendants from participating in any offering of penny stock, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock; (iii) ordering Bronson, E-Lionheart Associates, and FCI jointly and severally liable for disgorgement of $9,355,271.79 and prejudgment interest thereon in the amount of $2,177,100.59; (iv) ordering Bronson liable for a civil penalty in the amount of $150,000 and E-Lionheart liable for a civil penalty in the amount of $725,000; and (v) ordering FCI jointly and severally liable for disgorgement of $645,000.00 and prejudgment interest thereon in the amount of $151,031.37. (Am. Final J. 4.) The Second Circuit affirmed this Court's Final Judgment on November 20, 2019. (Dkt. No. 198.)

On February 19, 2020, the SEC filed an Application for an Order to Show Cause as to why Bronson should not be held in contempt, alleging that Bronson, despite "earning substantial income," had paid nothing toward the Court's Judgment. (Dkt. No. 202.) On January 19, 2021, the Court granted the SEC's Application and ordered that:

1. Bronson shall make a good-faith payment of $25,000 to the SEC no later than one week from entry of this Order;

2. Bronson must produce all financial records and other documents requested by the SEC—including records and documents for Dawn Bronson and V2IP—no later than two weeks from entry of this Order, along with a full accounting of all assets and income;

3. Bronson and Dawn Bronson must sit for an SEC deposition no later than February 26, 2021, unless the SEC requests a postponement;

4. Within four weeks of Bronson's or Dawn Bronson's deposition—whichever is later—Bronson shall meet with the SEC to negotiate in good faith a long-term payment plan to satisfy his obligation to the Court. After meeting with Bronson, the SEC shall file with the Court a proposed payment plan, which shall be supported by a detailed and comprehensive accounting of Bronson's financial condition.

(Jan. 19, 2021 Contempt Order at 30 (Dkt. No. 223).)⁴ The Court explained its reasoning, stating:

It has been over three years since the Court ordered Bronson to disgorge his illegal profits. In that time Bronson has been working hard at investing clients’ funds and working on multiple international and domestic projects, the proceeds from which have gone to support an extravagant lifestyle for Bronson and his family. Bronson, however, has not paid a penny toward his financial obligation in this case. In such circumstances, it is appropriate to consider the possibility of incarceration.

(Id. at 29.) The Court also stated, "The Court's patience is at an end. Bronson has not only flouted the Court's Order for three years, but has also chosen to make every effort to hide his financial condition and steadfastly frustrate the SEC's efforts at collection." (Id. at 29–30.) Finally, the Court noted:

Although the Court declines, for now, to order Bronson incarcerated, the Court will revisit this decision if Bronson violates any provisions of this Order. Bronson will remain in contempt until he has (1) paid the full amount of disgorgement and prejudgment interest owed to the Court, or (2) provided documentation, including financial records.

(Id. at 30.)

On January 27, 2021, the SEC filed a letter to the Court stating that Bronson had failed to make his first good-faith payment. (Dkt. No. 224.) The Court ordered Bronson to make the required payment by January 29, 2021 at 5pm "or face the full range of sanctions." (Dkt. No. 225.) Though Bronson did make the initial payment, it was late—a delay which the Court ordered Bronson to explain in an...