Sec. & Exch. Comm'n v. Gallison

• Docket Number: 15 Civ. 5456 (GBD)
• Decision Date: 28 February 2022
• Citation: 588 F.Supp.3d 509
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Harold Bailey GALLISON, Robert S. Oppenheimer and Core Business One, Inc., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

588 F.Supp.3d 509

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Harold Bailey GALLISON, Robert S. Oppenheimer and Core Business One, Inc., et al., Defendants.

15 Civ. 5456 (GBD)

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

Signed February 28, 2022

Filed March 1, 2022

Richard S. Hong, Securities and Exchange Commission, New York, NY, Nicholas Alexander Pilgrim, Pro Hac Vice, U.S. Securities and Exchange Commission, Washington, DC, for Plaintiff.

David Winton, Pro Hac Vice, Jay R. Strauss, Winton Strauss Law Group, P.C., Novato, CA, for Defendant Robert S. Oppenheimer.

David Winton, Winton Strauss Law Group, P.C., Novato, CA, for Defendant Core Business One, Inc.

MEMORANDUM DECISION AND ORDER

GEORGE B. DANIELS, United States District Judge:

Plaintiff, the Securities and Exchange Commission ("SEC"), brings this action against various defendants, including Robert S. Oppenheimer ("Oppenheimer") and Core Business One, Inc. ("CBO") pursuant to Section 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77e, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b), 15 U.S.C. § 78j(b), and Section 17(a)(2) of the Securities Act, 15 U.S.C. § 77q(a)(2). (Compl., ECF No. 37.) Plaintiff moves for summary judgment as to Oppenheimer and CBO's liability and is seeking the following relief: (1) a permanent restraint and enjoinment of violations of the securities laws; (2) disgorgement; (3) civil monetary penalties; (4) a penny stock bar; and (5) an officer and director bar. (Pl. SEC's Mem. of Law in Support of its Mo. for Summ. J. Against Defs. Robert S. Oppenheimer and Core Busines One, Inc. ("SEC MSJ"), ECF No. 279; Compl. at p. 51-63.) Oppenheimer and CBO cross-move for summary judgment to dismiss the SEC's claims. (Mem. of Points and Auth. in Supp. of Def. Robert S. Oppenheimer's Mo. for Summ. J. ("Defs. MSJ"), ECF No. 280.) Subsequently, Plaintiff filed a motion to strike certain portions of Oppenheimer and CBO's SDNY Local Rule 56.1 statement. (Pl. SEC's Mo. to Strike Certain Portions of Def. Robert S. Oppenheimer's Local Rule 56.1 Statement, ECF No. 317.)

Plaintiff's motion for summary judgment as to Oppenheimer and CBO's liability is GRANTED. Oppenheimer and CBO's cross motion for summary judgment is DENIED. Plaintiff's motion to strike is DENIED as moot.¹

I. FACTUAL BACKGROUND

A. Factual History

The following facts are not disputed except where noted.

Robert Oppenheimer is the CEO and sole employee of CBO, through which Oppenheimer acts a business consultant. (Pl. SEC's Statement of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 in Supp. of its Mot. for Summ. J. on Liability against Defs.’ Robert S. Oppenheimer and Core Business One ("SEC SUMF"), ECF No. 283 at ¶¶ 2-3.) In 2003, Oppenheimer began providing business advice to Paul Wilkinson ("Wilkinson") regarding Wilkinson's business, Nature's Peak, Inc. ("Nature's Peak"), of which Wilkinson was Founder, President, and CEO. (SEC SUMF ¶ 7; Defs.’ Response to Pl.’s Local Rule 56.1 Statement ("Defs.’ SUMF Response"), ECF No. 323 ¶ 7.)² Nature's Peak was a privately held business that produced and sold vegetable dips and sandwich spreads. (SEC SUMF ¶ 4; Defs.’ SUMF Response ¶ 4.) By 2007, Nature's Peak was not profitable and lacked sufficient funds to pay for production and marketing costs. (SEC SUMF ¶ 11–12.) As a result, Wilkinson asked Oppenheimer for guidance on raising capital for Nature's Peak. (Decl. of Eric M. Schmidt in Supp. of Pl.’s Mot. for Summ. J. as to Liability against Defs. Robert S. Oppenheimer and Core Business One ("Schmidt Decl."), Ex. 1 (Oppenheimer Deposition Transcript Excerpts), ECF 289-1 at 107:3-108:2.) Oppenheimer referred Wilkinson to Todd Spehler ("Spehler") (an acquaintance of Oppenheimer's), who, in turn, introduced Wilkinson to Frank Zangara³ ("Zangara") and Mark Dresner⁴ ("Dresner"). (Id. )

i. Transition to Everock

In or around 2008, Spehler and Zangara recommend that Wilkinson transition Nature's Peak into a public company through a reverse merger with Everock, Inc. ("EVRN" or "Everock") — a public shell company controlled by Zangara.⁵ (SEC SUMF ¶ 18; Defs.’ SUMF Response ¶ 18.) Before the merger, Wilkinson consulted with Oppenheimer. (SEC SUMF ¶ 22.) Plaintiff claims that Nature's Peak was used in a "pump and dump" scheme through this reverse merger with Everock.⁶ (SEC SUMF ¶ 16; Defs.’ SUMF Response ¶ 16 (disputing that the pump and dump scheme was used to raise money, but rather was used to help a small group of criminals further their own illicit and concealed scheme.))

In July 2008, Charles Moeller⁷ ("Moeller"), who served as EVRN's President and Chief Executive Officer, issued 300 million restricted shares of EVRN common stock to himself.⁸ (SEC SUMF ¶¶ 22, 23, 25, 29; Defs.’ SUMF Response ¶¶ 22, 29 (disputing "any causal link" from Wilkinson consulting with Oppenheimer and Wilkinson agreeing to move forward with the reverse merger.)) In August 2008, Nature's Peak and EVRN entered into a reverse merger and EVRN common stock was quoted on OTC Link.⁹ (SEC SUMF ¶¶ 20, 26; Defs.’ SUMF Response ¶¶ 20, 26.)

ii. Removal of Restrictions from Moeller's EVRN Stock

Plaintiff alleges that, from August 2009 through June 2010, Moeller and Oppenheimer through Zangara's direction, had EVRN's transfer agent¹⁰ remove trading restrictions from Moeller's EVRN stock and transfer the 300 million shares to brokerage accounts controlled by Zangara (or his associates). (SEC SUMF ¶ 30; Defs.’ SUMF Response ¶ 30 (stating "Oppenheimer lacks personal knowledge necessary to confirm or refute this statement.").) Then stock would be sold publicly in tandem with efforts to create artificial demand for the stock. (Id. )

Moeller's shares were transferred through the use of "email, internet and/or telephone communications" by the Continental Transfer and Trust Company ("Continental") using the Deposit and Withdrawal at Custodian process¹¹ , and Oppenheimer and CBO used email and facsimile to communicate with Continental concerning the transfer of Moeller's shares. (SEC SUMF ¶ 32; Defs.’ SUMF Response ¶ 32 (Undisputed that Oppenheimer and CBO "used email and facsimile to communicate with Continental" as to the rest, "Oppenheimer lacks personal knowledge necessary to confirm or refute this statement.").) Plaintiff alleges that Oppenheimer directed EVRN's counsel to issue an opinion letter to Continental stating that trading restrictions on Moeller's 300 million shares could be lifted and arranged for EVRN's counsel to submit a letter to Continental to facilitate the issuance and transfer of shares without a restrictive legend. (SEC SUMF ¶¶ 35, 37–38.) Once the restrictions were lifted, Plaintiff alleges that Oppenheimer worked with Moeller and Zangara—by providing representations on behalf of EVRN—to ensure that Scottsdale Securities (one of Zangara's broker-dealers) would accept Moeller's EVRN shares. (SEC SUMF ¶¶ 40-41; Defs. SUMF Response ¶¶ 40-41 (asserting that Oppenheimer's conduct was ministerial and done at the direction and approval of Wilkinson).)

Oppenheimer and CBO contend that the SEC's assertion is a mischaracterization of the opinion letter sent from EVRN's counsel to Continental and that Plaintiff fails to cite evidence that demonstrates Oppenheimer's direction of EVRN's counsel. (Defs.’ SUMF Response ¶ 37.) Further, Oppenheimer and CBO specify that Oppenheimer's conduct "was ministerial and done at the direction and with the approval of his client Wilkinson." (Defs.’ SUMF Response ¶¶ 37–38.)

iii. Oppenheimer's Alleged Role in the Misrepresentation and Sale of Unregistered EVRN Stock

Plaintiff alleges that through CBO, Oppenheimer helped complete Nature's Peak reverse merger with EVRN, obtained a ticker symbol for the newly merged EVRN so the company could be publicly traded, and reviewed and approved draft documents of Nature's Peak's financial disclosures. (SEC SUMF ¶ 33.) Oppenheimer disputes that he materially prepared documents for the merger and specifies that, while he reviewed and approved draft documents, the "[c]ontent and financial data were prepared by other persons." (Defs.’ SUMF Response ¶ 33.) Oppenheimer does not deny that "[he] sent an email requesting a ticker symbol for Nature's Peak."¹² (Id. )

In addition, Plaintiff alleges Oppenheimer prepared press releases and disclosure statements to generate buying interest in EVRN stock for the pump and dump of which Oppenheimer and CBO received proceeds. Oppenheimer and CBO contend that those press releases and statements were reviewed and approved by Wilkinson. (Defs.’ SUMF Response ¶ 42.)

On October 3, 2009, EVRN submitted an Annual Update Disclosure Statement ("Oct. 3, 2009 AUDS") with OTC Markets, which was posted on the OTC Markets website. (SEC SUMF ¶ 45; Defs.’ SUMF Response ¶ 45.) Plaintiff alleges that Oppenheimer was involved in the preparation, signing, and issuance of the Oct. 3, 2009 AUDS and in "making sure that information in the filing concerning share amounts was accurate." (SEC SUMF ¶¶ 46–47; Defs.’ SUMF Response ¶¶ 46–47 (disputing that Oppenheimer was responsible for making sure the information in the filing was accurate and instead sought and obtained confirmation from Wilkinson, Moeller, or legal counsel).) The Oct. 3, 2009 AUDS stated that Moeller had "effectively returned" 270 million of his 300 million shares back to EVRN. (SEC SUMF ¶ 48.)

The SEC alleges that this filing was false because Moeller had returned zero shares back to EVRN. (SEC SUMF ¶ 49.) Plaintiff maintains, through testimony from Zangara, that Oppenheimer controlled the 270 million shares and transferred control of them to Zangara to promote and sell. (SEC SUMF ¶ 49.) Oppenheimer alleges that Zangara lied at trial and that Oppenheimer "did not ‘control’ [EVRN] shares in anything more than a purely ministerial capacity[.]" (Defs.’ SUMF Response ¶ 49.) After the restrictions were lifted and the shares were transferred to accounts controlled by Zangara, they were...