U.S. S.E.C. v. Svoboda
| Decision Date | 03 January 2006 |
| Docket Number | No. 00 Civ. 8557(MBM).,00 Civ. 8557(MBM). |
| Citation | 409 F.Supp.2d 331 |
| Parties | UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Richard A. SVOBODA and Michael A. Robles, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Erica Y. Williams, Daniel H. Rubenstein, Securities and Exchange Commission, Washington, DC, for plaintiff.
Roger J. Schwarz, New York, NY, for defendant Richard A. Svoboda.
Charles D. Abercrombie, New York, NY, for defendant Michael A. Robles.
The Securities and Exchange Commission ("SEC") moves for summary judgment under Fed.R.Civ.P. 56(a) against defendants Richard A. Svoboda and Michael A. Robles on claims brought under Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b) (2000), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5 (2005); Section 14(e) of the Exchange Act, 15 U.S.C. § 78n(e), and Rule 14e-3 thereunder, 17 C.F.R. § 240.14e-3 (2005); and Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a). In addition, the SEC seeks permanent injunctive relief barring Svoboda and Robles from violating the securities laws; disgorgement and prejudgment interest; the imposition of joint and several liability on Svoboda for Robles' disgorgement and prejudgment interest; and the maximum civil penalties permitted by Section 21A of the Insider Trading and Securities Fraud Enforcement Act, 15 U.S.C. § 78u-l. Defendants, both convicted of criminal charges that underlie these claims, do not contest their civil liability, but challenge the relief requested. For the reasons set forth below, summary judgment on all of the SEC's claims is granted, as is permanent injunctive relief against both defendants. In addition, this court imposes disgorgement, prejudgment interest, and joint and several liability on Svoboda for Robles' disgorgement and prejudgment interest. Finally, the court imposes civil penalties of $150,000 on Svoboda and $250,000 on Robles, amounts less than requested by the SEC.
Between 1994 and 1998, Svoboda, a credit policy officer in the Dallas office of NationsBank N.A. ("NationsBank"), evaluated and approved NationsBank's extension of credit to clients, as well as various other credit arrangements. (SEC's Rule 56.1 Statement of Material Facts ("Pl.'s Statement of Facts") ¶ 2, 11)1 These responsibilities gave him access to nonpublic information about the clients' earnings, expected performance, possible or actual merger and acquisition plans, restructurings, and tender offers, as contained in memoranda, e-mails, and confidential credit applications. (Id. ¶¶ 2, 10) Svoboda also worked closely with NationsBank client relationship managers and credit products officers who often informed him of developments that might affect the credit agreements their clients maintained with the company. (Id. ¶ 11)
Svoboda knew throughout his tenure at NationsBank that he was not permitted to use confidential information he obtained through his employment to trade securities or to disclose such information to persons outside the company so that they could trade securities. (Pl.'s Statement of Facts ¶ 6; Rubenstein Decl., Ex. F, 604:8-605:14, 609:12-15) What was no doubt already clear was made explicit around June 1995 when Svoboda received NationsBank's written "General Policy on Insider Trading," which stated, among other things, that "[n]o ... associate of NationsBank may trade in any security, either personally, or for or on the behalf of others ... while in possession of Inside Information relating to such security, or communicate or disclose, in any manner, Inside Information to others in violation of a duty to keep it confidential." (Rubenstein Decl., Ex. A, ¶ 4) The policy also provided that "[u]nlawfully disclosing or `tipping' information about a company to others who then trade while in possession of the information may give rise to claims against the person tipping the information." (Id.) In about April 1997, Svoboda received a revised company policy on confidential information that stated: "All material nonpublic information ... obtained by an associate during the course of employment ... must remain confidential and should be used only for the business purpose it was communicated." (Pl.'s Statement of Facts ¶ 5). The revised policy came at a time of "much more rigid rules about trading securities and higher level[s] of supervision and monitoring internally about trading securities." (Rubenstein Decl., Ex. F, 608:20-609:1)
Despite Svoboda's awareness of these policies, in late 1994 or early 1995, he devised a scheme with Robles, a life-long friend who worked as an independent accountant, to use NationsBank's confidential information to trade for profit. (Pl.'s Statement of Facts ¶¶ 3, 13) The two men agreed that Svoboda would furnish Robles with inside information regarding NationsBank clients and advise him regarding the number of shares he could safely buy and yet evade detection. (Id. ¶ 13; Rubenstein Decl., Ex. F, 621:25-622:14, 624:14-25). Robles then would execute all of the trades and split the profits evenly with Svoboda. (Pl.'s Statement of Facts ¶¶ 13, 16) Robles maintained a ledger listing the profits and each defendant's share. (Rubenstein Decl., Ex. F, 710:1-712:13) Pursuant to their scheme, Robles traded in the securities of over 20 different issuers based on inside information between January 1995 and December 1998. (See Pl.'s Statement of Facts ¶¶ 15, 20-172) Svoboda also secretly executed several trades for his own profit through brokerage accounts held by himself and his wife, despite defendants' agreement that Robles would do all the trading. (Id. ¶ 17; Rubenstein Decl., Ex. F, 627:7-19, 713:5-20)
The inside information Svoboda provided to Robles most often related to companies that Svoboda knew were involved in prospective acquisitions. In such a case, Svoboda would tell Robles the proposed acquisition price, the name of the company whose securities Robles would purchase, Svoboda's assessment of the likelihood of the acquisition, and some background information. (Pl.'s Statement of Facts ¶ 14) Using this method, defendants traded for profit in the securities of fifteen different issuers. Svoboda also provided Robles with inside information regarding a management-led leveraged buyout that both men used to turn a profit. (Id. ¶¶ 41-46)
Svoboda would also tip Robles regarding nonpublic negative earnings developments relating to companies that were NationsBank clients. These tips allowed Robles to trade profitably in the securities of four different issuers. (Rubenstein Decl., Ex. F, 623:17-23; see Pl.'s Statement of Facts ¶¶ 59-63, 105-11, 136-42, 161-72) Svoboda also used nonpublic information regarding favorable earnings at another issuer to net over $8,000 in profits. (Pl.'s Statement of Facts ¶¶ 54-58)
Svoboda and Robles took steps during the course of their scheme to conceal their activity. For example, in an attempt to avoid a "money trail," Svoboda and Robles agreed that Robles would furnish Svoboda with his share of the trading proceeds in small cash payments. (Rubenstein Decl., Ex. F, 701:2-702:20) To further avoid detection, Svoboda would not deposit these payments in his own bank account nor would he report them on his tax returns. (Id. at 702:21-703:12) Because this method could not keep pace with the "hundreds of thousands of dollars" that Robles owed Svoboda from the trades (id. at 713:4), Svoboda arranged for Robles to make numerous credit card purchases on his behalf, including payments for furniture and a trip to Hawaii. (Id. at 703:18-706:25) In another attempt to conceal their wrongdoing, Svoboda, at Robles' request, provided Robles with public background information on the companies in which he was trading so he could "appear knowledgeable" if asked about a particular trade without revealing that he possessed inside information. (Id. at 628:13-25) In addition, when NationsBank became suspicious of Svoboda's activities after the SEC subpoenaed him, Svoboda lied to company lawyers about his trading to avoid termination and arrest. He was ultimately fired for his failure to cooperate in the company's internal investigation. (Id. at 734:9-15)
On November 7, 2000, a grand jury in the Southern District of New York returned a 20-count indictment against both Svoboda and Robles for criminal conspiracy to commit securities fraud in violation of 18 U.S.C. § 371; securities fraud in violation of 15 U.S.C. §§ 78j(b), 78ff, and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; and tender offer fraud in violation of 15 U.S.C. §§ 78n(e), 78ff, and Rule 14e-3 thereunder, 17 C.F.R. § 240.14e-3. The same day, the SEC filed a civil complaint in the present action alleging substantially similar, but not identical, insider trading violations.
On February 27, 2002, Svoboda pleaded guilty to the criminal conspiracy charge, and to ten counts of securities fraud and seven counts of tender offer fraud. (See Rubenstein Decl., Ex. C, 4:4-18) In November, Judge Berman sentenced Svoboda to a year and a day of incarceration and ordered him to pay a $200,000 criminal fine. However, Judge Berman noted that he was "not going to impose restitution in light of the [SEC's] civil action that is simultaneously pending." (Rubenstein Decl, Ex. G, 18:6-8) The judgment of criminal conviction was entered on December 4. (See Rubenstein Decl., Ex. E)
On November 11, 2004, after his release from prison, Svoboda filed a Chapter 13 bankruptcy petition in the Northern District of Texas. (Schrage Reply Decl. ¶¶ 1, 2; see also id., Ex. C) The SEC has moved to dismiss Svoboda's...
To continue reading
Request your trial
-
S.E.C. v. Aragon Capital Management, LLC
...taxes that they may have paid. See SEC v. Koenig, 532 F.Supp.2d 987, 994 (N.D.I11.2007) (rejecting similar request); SEC v. Svoboda, 409 F.Supp.2d 331, 345 (S.D.N.Y.2006) 2. Joint and Several Liability In January 2008, Heyman settled with the Commission pursuant to a stipulated Final Judgme......
-
Sec. & Exch. Comm'n v. Sabrdaran
...... See, e.g., Gowrish , 2011 WL 2790482, at *7 ; see also, e.g., SEC v. Svoboda , 409 F.Supp.2d 331, 346 (S.D.N.Y. 2006) (ordering tipper jointly and severally liable for 252 F.Supp.3d 899 disgorgement and prejudgment interest ......
-
USSEC v. Suman
...failed to controvert in numbered paragraphs "will be deemed to be admitted" pursuant to Local Rule 56.1(c). See S.E.C. v. Svoboda, 409 F.Supp.2d 331, 337 & n. 1 (S.D.N.Y.2006) (citing Giannullo v. City of N.Y., 322 F.3d 139, 140 (2d Cir.2003)); see also S.E.C. v. Musella, 678 F.Supp. 1060, ......
-
Sec. & Exch. Comm'n v. Constantin
...where the fraud scheme at issue was broad in scope, long in duration, and involved a high degree of scienter.” U.S. S.E.C. v. Svoboda, 409 F.Supp.2d 331, 343 (S.D.N.Y.2006) (citing cases). All of these factors are clearly present in this case. The most “critical question for a district cour......
-
Securities fraud.
...(S.D. Ohio 2004) (defendant was not likely to receive any future benefit by enhancing his reputation with his barber); SEC v. Svoboda, 409 F. Supp. 2d 331, 341 (S.D.N.Y. 2006) (tippee's knowledge of the tipper's fiduciary duty as an employee of issuer's bank was established by an agreement ......
-
Securities fraud.
...2004) (defendant was not likely to receive any future benefit by enhancing his reputation with his barber); U.S.S.E.C. v. Svoboda, 409 F.Supp.2d 331, 341 (S.D.N.Y. 2006) (tippee's knowledge of the tipper's fiduciary duty as an employee of issuer's bank was established by an agreement to exe......
-
Securities fraud.
...(S.D. Ohio 2004) (defendant was not likely to receive any future benefit by enhancing his reputation with his barber); SEC v. Svoboda, 409 F. Supp. 2d 331,341 (S.D.N.Y. 2006) (tippee's knowledge of the tipper's fiduciary duty as an employee of issuer's bank was established by an agreement t......
-
SECURITIES FRAUD
...that tipper was violating relationship of trust as director of corporation and tipper benefited from trades); SEC v. Svoboda, 409 F. Supp. 2d 331, 341 (S.D.N.Y. 2006) (finding liability where the tippee trades on material, non- public information and the tippee’s knowledge of the tipper’s......