U.S. Sec. & Exch. Comm'n v. John J. Bravata, Richard J. Trabulsy, Antonio M. Bravata, BBC Equities, LLC

• Decision Date: 06 March 2014
• Docket Number: Case No. 09–12950.
• Citation: 3 F.Supp.3d 638
• Parties: UNITED STATES SECURITIES and EXCHANGE COMMISSION, Plaintiff, v. John J. BRAVATA, Richard J. Trabulsy, Antonio M. Bravata, BBC Equities, LLC, Bravata Financial Group, LLC, and Shari A. Bravata, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

3 F.Supp.3d 638

UNITED STATES SECURITIES and EXCHANGE COMMISSION, Plaintiff,

v.John J. BRAVATA, Richard J. Trabulsy, Antonio M. Bravata, BBC Equities, LLC, Bravata Financial Group, LLC, and Shari A. Bravata, Defendants.

Case No. 09–12950.

United States District Court,

E.D. Michigan,

Southern Division.

Signed March 6, 2014.

Benjamin J. Hanauer, James G. Lundy, Securities and Exchange Commission, Chicago, IL, Louis P. Gabel, U.S. Attorney's Office, Detroit, MI, for Plaintiff.

John J. Bravata, Loretto, PA, pro se.

Richard J. Trabulsy, Tampa, FL, pro se.

Shari A. Bravata, Dade City, FL, pro se.

OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

DAVID M. LAWSON, District Judge.

This matter is before the Court on the motion by plaintiffUnited States Securities and Exchange Commission(SEC) for summary judgment.The SEC filed an amended complaint alleging that defendantsJohn J. Bravata, Richard J. Trabulsy, Antonio M. Bravata, BBC Equities, LLC, and Bravata Financial Group, LLC unlawfully sold unregistered securities (Count I), violated the Securities Act by defrauding investors (Counts II and III), violated the Securities Exchange Act by engaging in a scheme to defraud investors (Count IV), and unlawfully sold securities without registering under the Securities Exchange Act as broker dealers (Count V).The SEC seeks damages, fines, disgorgement, and injunctive relief against those defendants, and disgorgement from “relief defendant”Shari A. Bravata because she enjoyed the proceeds of the fraudulent scheme.Shortly after the complaint was filed in the summer of 2009, the Court entered a preliminary injunction that froze the defendants' assets, and, after holding an evidentiary hearing, continued the injunction, which has remained in effect throughout this lawsuit.

While this case was pending, the government indicted defendantsJohn Bravata, Richard Trabulsy, and Antonio Bravata for various counts of conspiracy and wire fraud stemming from the conduct alleged in the amended complaint in this case.Trabulsy pleaded guilty and a jury convicted John and Antonio Bravata.The SEC argues in its motion that under the doctrine of collateral estoppel, the fraud elements of its claims are established conclusively, there are no material fact disputes on the other elements, and therefore it is entitled to a judgment as a matter of law.John Bravata, Antonio Bravata, and Shari Bravata have filed responses opposing the motion.The Court has reviewed the parties' submissions and finds that the relevant law and facts have been set forth in the motion papers and that oral argument will not aid in the disposition of the motions.Moreover, John and Antonio Bravata are in prison and not able to attend a hearing, so an oral presentation by the plaintiff would be one-sided and not serve a useful purpose.Accordingly, it is ORDERED that the motion be decided on the papers submitted.SeeE.D. Mich. LR 7.1(f)(2).

There is no doubt that the criminal convictions are conclusive as to the elements necessary to establish the crimes of wire and mail fraud and conspiracy to commit wire and mail fraud.The fraudulent scheme alleged in the superseding indictment dealt with the BBC securities offerings.The defendants' responses to the motions attempt to relitigate the defenses in the criminal case rejected by the jury and the trial judge when he denied the motion for judgment of acquittal.And their arguments are conclusory and contain no references to the record in this case, except for sections of the private placement memorandum (PPM), which does not withstand the force of the criminal convictions.The Court finds that there are no issues of material fact that warrant a trial, and the plaintiff is entitled to a judgment as a matter of law on the defendants' liability.“Relief defendant”Shari Bravata argues that she is entitled to a jury trial to adjudicate the disgorgement claim, but because that is an equitable remedy, the Court, not a jury, must decide it.The undisputed facts show that the SEC is entitled to the relief it seeks, and therefore the Court will enter judgment against the defendants as outlined below.

I.Facts and proceedings

DefendantJohn Bravata formed Bravata Financial Group in January 2003.He started BBC Equities on May 1, 2006.Between 2006 and June 30, 2009, these defendants received $55.2 million from approximately 440 investors.The SEC alleges, and the evidence establishes, that the defendants engaged in the unauthorized sale of securities to generate those funds, and that the securities it offered for sale were part of a fraudulent scheme in which earlier investors were paid “returns” from new investments remitted by subsequent investors.That type of investment structure is commonly known as a pyramid or Ponzi scheme.

The Michigan Office of Financial and Insurance Regulation issued a cease and desist order against BBC in March 2009, and, as mentioned above, this Court issued a preliminary injunction that froze BBC's operations and assets in July 2009.The Court held an evidentiary hearing over several days before ordering the injunction continued.The facts discussed below include consideration of the testimony taken at the preliminary injunction hearing only insofar as (1) any statements made by a party witness may be taken as party admissions, and the party points to no other specific contradictory facts in the record, seeFed.R.Evid.801(d)(2)(a); and (2) other uncontested facts were established at that hearing, seeFed.R.Civ.P.65(a)(2)(stating that “evidence that is received on [a]motion [for preliminary injunction] and that would be admissible at trial becomes part of the trial record and need not be repeated at trial”).See alsoCintas Corp. v. Perry,517 F.3d 459, 466 n. 2(7th Cir.2008)(holding that where discovery did not produce much additional evidence, “[t]he district court correctly articulated the summary judgment standard and did not err in referring to findings from the preliminary injunction phase of the lawsuit”);Clinkscales v. Chevron U.S.A., Inc.,831 F.2d 1565, 1570(11th Cir.1987)(holding that a transcript of preliminary injunction hearing could be considered on a motion for summary judgment, although the party offering testimony bore the burden of producing it);Century 21 Real Estate LLC v. All Professional Realty, Inc.,889 F.Supp.2d 1198(E.D.Cal.2012)(holding that in deciding a motion for summary judgmentthe court could consider the substance of the testimony from the transcript of a prior evidentiary hearing on a motion for preliminary injunction without taking judicial notice of the transcript).

A.Background facts

DefendantsJohn Bravata and Richard Trabulsy operated BBC Equities, LLC and Bravata Financial Group, LLC.BBC Equities and Bravata Financial solicited contributions from individuals, representing that the funds would be invested and specific returns would be realized.As mentioned above, approximately 440 individual investors transferred to BBC Equities and Bravata Financial funds totaling $52,943,630.None of the defendants was a registered securities broker or dealer at the time.

The records of the corporate defendants reveal that the returns paid out to (or reinvested for) earlier investors came not from proceeds earned by the companies' investments, but rather from funds contributed by later investors.The records also show that the investors' money was used by the individual defendants to purchase several personal luxury items.

1.Inception date

There is a dispute over the date the investment scheme began.The SEC contends that BBC began taking money from investors on May 22, 2006.The defendants argue that no investment in BBC Equities occurred until October 2006.The company records show that the transfers of funds by Roman Kuzma and Lily Trabulsy(Richard Trabulsy's grandmother) into the personal bank accounts of John and Shari Bravata and the account of Bravata Financial represent the initial investments in BBC Equities.BBC Equities's promotional materials represent that the “inception date” of the BBC Equities offering was May 1, 2006.As noted above, John Bravata founded BBC Equities on that same date, although at the time BBC Equities was known as Bravata Holdings X, LLC.On May 19, 2006, John and Shari Bravata's primary bank account had a balance of $198.18.On May 22, 2006, Roman Kuzma wired $100,000 to the Bravatas' primary bank account, and he wired an additional $299,985 to the Bravatas' bank account on June 9, 2006.On June 8, 2006, Bravata Financial's bank account had a balance of $9,440.27.The next day, Lily Trabulsy paid $210,000, which was deposited into Bravata Financial's bank account.After receiving Lily Trabulsy's $210,000 deposit, Bravata Financial transferred $120,000 to John Bravata's primary checkingaccount and issued Richard Trabulsy a $45,000 check with the notation “commissions.”

John Bravata argues that investor Kuzma did not subscribe to the units offered and sold by BBC Equities in June 2006.Kuzma states that he entered into a partnership with John Bravata to purchase two distressed commercial properties in Brighton and Ferndale, Michigan for potential resale, and he loaned Bravata funds to establish a financial services business.However, Kuzma testified that he could not remember the specific dates of interactions with Bravata in the 2005–2007 time frame, and that he gave Bravata money during that period to invest in real estate.In a settlement agreement that Kuzma entered with Bravata and BBC Equities in August 2008, Kuzma asserted that he was entitled to receive 3,000,000 Class A shares of BBC Equities securities as a result of Kuzma's advancing Bravata $890,000 for “real estate interests.”Kuzma, Bravata, and BBC Equities agreed that “the funds [Kuzma] advanced were on account of his interests in [BBC-Equities-related] entities and not loans to Bravata.”SEC Ex. 75, p. 1.Therefore, Kuzma's...