U.S. Sec. & Exch. Comm'n v. Ahmed

• Decision Date: 28 July 2020
• Docket Number: Civil No. 3:15cv675 (JBA)
• Citation: U.S. Sec. & Exch. Comm'n v. Ahmed, Civil No. 3:15cv675 (JBA) (D. Conn. Jul 28, 2020)
• Court: U.S. District Court — District of Connecticut
• Parties: UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. IFTIKAR AHMED, Defendant, and IFTIKAR ALI AHMED SOLE PROP; I-CUBED DOMAINS, LLC; SHALINI AHMED; SHALINI AHMED 2014 GRANTOR RETAINED ANNUITY TRUST; DIYA HOLDINGS LLC; DIYA REAL HOLDINGS, LLC; I.I. 1, a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents; I.I. 2, a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents; and I.I. 3, a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents, Relief Defendants.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. IFTIKAR AHMED, Defendant, andIFTIKAR ALI AHMED SOLE PROP; I-CUBED DOMAINS, LLC; SHALINI AHMED;SHALINI AHMED 2014 GRANTOR RETAINED ANNUITY TRUST;DIYA HOLDINGS LLC; DIYA REAL HOLDINGS, LLC;I.I. 1, a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents; I.I. 2,a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents;and I.I. 3, a minor child, by and through his next friends IFTIKARand SHALINI AHMED, his parents, ReliefDefendants.

Civil No. 3:15cv675 (JBA)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

July 28, 2020

RULING ON DEFENDANT'S MOTIONS REGARDING OAK ARBITRATION

Defendant moves for "leave to file any arbitration and/or continue arbitration against Oak,"(Mot. for Leave to Arb. [Doc. # 1225]at 1), for "a Court Order Staying the AAA [arbitration] action that Oak has brought against the Defendant, pending appeal of the ruling allowing that action to proceed,"(Mot. to Stay Arb. [Doc. # 1323]at 1), and for the release of funds "to [r]etain legal counsel in the AAA matter with Oak,"(Mot. for Fees[Doc. # 1371]at 1).

I.Background

The Court assumes the parties' familiarity with the background of this case, including the ongoing asset freeze and the nature of the relationship between Defendant and the Oak entities (collectively, "Oak").On December 20, 2018, Jed Horwitt, Esq. of Zeisler & Zeisler, P.C., was appointed to serve as receiver for the assets subject to the Court's ongoing asset freeze order to "value the frozen assets and avoid over-freezing, to secure the judgment for the SEC, to manage and maximize the value of frozen assets under the guidance of a neutral third party, and to take necessary steps toward effectuating the judgment."(Order Appointing Rec. [Doc. # 1070]at 5.)In the Order Appointing the Receiver, the Court imposed a stay of "[a]ll civil legal proceedings of any nature, including . . . arbitration proceedings . . . to obtain possession of property of the Receivership Estate, wherever located . . . [or] against any of the Defendants, including any wholly-owned owned subsidiaries and partnerships in which a Defendant is a general partner"(the "Litigation Stay").(Id. at 13.)

Oak previously moved to lift the litigation stay "for the limited purpose of commencing an arbitration against defendantIftikar Ahmed to recover damages it suffered in connection with the very same fraudulent scheme that is the subject of this litigation."(Oak's Mot. to Lift Lit. Stay[Doc. # 1132]at 1.)In pursuing an arbitration against Defendant, Oak did "not seek to disturb the asset freeze or take priority over the SEC's claim to any of the frozen assets."(Oak's Mem. Supp. Mot. to Lift Lit. Stay[Doc. # 1133]at 4.)

The Court granted Oak's motion to lift the litigation stay, finding that "maintaining the stay as to Oak's desired arbitration is not necessary to preserve the status quo of the Receivership Estate" and recognizing the risk of irreparable injury to Oak if unable to timely pursue its claims against Defendant due to "the possible dissipation of assets if and when the Court releases [any residual] assets after the SEC's judgment has been secured."(Ruling on Mots. to Lift Lit. Stay [Doc. # 1167]at 12(internal quotation omitted).)

II.Discussion

A.Motion for Leave to Arbitrate

a. Legal Standard

"[D]istrict courts may appoint receivers as part of their broad power to remedy violations of federal securities laws," and "[a]n anti-litigation injunction is simply one of the tools available to courts to help further the goals of the receivership."S.E.C. v. Byers, 609 F.3d87, 92(2d Cir.2010)."The modification of a litigation stay is subject to a three-pronged test first articulated by the Ninth Circuit in Wencke," which "identified three factors for determining whether, in a receivership context, an injunction against litigation should be lifted,"S.E.C. v. Illaramendi, No. 3:11CV78 (JBA), 2012 WL 234016, at *4(D. Conn.Jan. 25, 2012):

(1) whether refusing to lift the stay genuinely preserves the status quo or whether the moving party will suffer substantial injury if not permitted to proceed; (2) the time in the course of the receivership at which the motion for relief from the stay is made; and (3) the merit of the moving party's underlying claim.

S.E.C. v. Wencke, 742 F.2d 1230, 1231(9th Cir.1984)."The first Wencke factor balances the interests of the Receiver in preserving the status quo against the interests of the moving party."Illaramendi, 2012 WL 234016, at *5.To satisfy the third factor, the movant need only have a "colorable claim that entitle[s] them to a trial on the merits," and courts should not attempt to "decide the merits" of the movant's claim when considering a motion to lift a litigation stay.Wencke, 742 F.2d at 1232."The burden is on the movant to prove that the balance of the factors weighs in favor of lifting the stay."Id. at *4(internal quotation omitted).

b. Arbitration Outside of the Scope of the Litigation Stay

Defendant moves "for leave to file any arbitration and/or continue arbitration against Oak that was stayed in June 2018, based on this Court's Preliminary Injunction Order."¹(Mot. for Leave to Arb.at 1.)Defendant now seeks to "file a counterclaim" in the arbitration proceedings initiated by Oak against him and to resume "his earlier filed arbitration . . . against Oak."(Id.)Defendant's Motion for Leave to Arbitrate makes no additional argumentsin support of his request.(See generallyid. at 1-3.)On reply, while arguing in support of his motion for leave to arbitrate against Oak, Defendant argues rather perplexingly that "[i]t is beyond the jurisdiction of this Court as well as the mandate of the SEC to have to approve or authorize any litigation or arbitration that the Defendant seeks to bring against his former employers," Oak.(Def.'s Reply to SEC's Opp. to Mot. for Leave to Arb. [Doc. # 1245]at 1.)

Given Defendant's lack of specificity regarding the arbitration he seeks to pursue against Oak and his assertion that this Court lacks jurisdiction to "approve or authorize" such arbitration, it is unclear to the Court what precisely Defendant seeks leave to do.Moreover, the Litigation Stay prohibits proceedings againstDefendant and certain other entities—not including Oak—but it does not prohibit proceedings byDefendant.Thus it is also unclear to the Court why Defendant believes that his arbitration against Oak is subject to the Litigation Stay.

On reply, Defendant suggests without explanation that any arbitration against Oak is covered by the Litigation Stay because it "falls under the category of '(c) against any of the Defendants... partnerships in which a Defendant is a general partner...' and '(d) ... against any of the Defendants' past or present officers, directors, managers, members, agents, or general or limited partners....'"(Def.'s Reply to SEC's Opp. to Mot. for Leave to Arb.at 4-5.)But in the absence of any explanation or any indication that Defendant remains a "general partner" of any Oak entity against which he seeks to arbitrate, the Court sees no way in which these provisions bring any arbitration against Oak within the scope of the current Litigation Stay.²

The SEC suggests that if Defendant needs leave from this Court to pursue his arbitration against Oak, then Defendant must be seeking "to obtain possession of property of the Receivership Estate," which the Litigation Stay prohibits.Otherwise, the SEC reasons, Defendant's arbitration against Oak would fall outside the scope of the Litigation Stay, and he would not need this Court's leave to pursue it.(SeeSEC Opp. [Doc. # 1243]at 2.)

Defendant is correct in noting that the Court need not "approve or authorize" proceedings "against [Defendant's] former employers,"unless those proceedings are otherwise covered by the terms of the Litigation Stay.Upon reviewing the provisions of the Litigation Stay, the Court agrees that if Defendant does not seek "to obtain possession of property of the Receivership Estate," then his arbitration against Oak is not prohibited by the Litigation Stay, and he need not seek this Court's leave to pursue it.Therefore, to the extent Defendant seeks leave to pursue arbitration against Oak which is not prohibited by the Litigation Stay, his Motion for Leave to Arbitrate is DENIED as moot.

c. Arbitration Within the Scope of the Litigation Stay

To the extent Defendant seeks leave to pursue arbitration against Oak which is prohibited by the Litigation Stay, the Court will consider whether lifting the Stay to permit such arbitration is proper.

Receiver Jed Horwitt objects to Defendant's request because "the Motion provides no details as to the nature of the Defendant's claims against Oak or any representation that such claims do not concern, or will not ultimately impact, any Receivership Assets or the Receivership Estate generally."(Receiver's Resp. to Mot. for Leave to Arb. [Doc. # 1240]at 2.)The Receiver explains that his counsel"requested copies of the Defendant's arbitration complaint and counterclaim from the Defendant" and "agreed to keep the requested documents confidential," but nonetheless "the Defendant declined to provide the same to theReceiver."(Id.)Thus, "[w]ithout being able to understand the nature of the Defendant's complaint and counterclaim to determine what impact, if any, the same may have on any specific Receivership Asset or on the Receivership Estate as a whole, . . . the Receiver has no choice but to object to the Motion."(Id. at 2-3.)The Receiver concludes that, in his view, this lack of notice as to the relief sought is a key difference between Defendant's motion and previously granted motions to lift the litigation stay, wherein the parties seeking permission to litigate assured the Court that they did not seek to disturb any assets of the Receivership Estate or jeopardize the...