Sec. & Exch. Comm'n v. Sason

673 F.Supp.3d 300

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Joshua SASON, Marc Manuel, Kautilya (a/k/a Tony) Sharma, Perian Salviola,Magna Management, LLC (f/k/a Magna Group, LLC),Magna Equities II, LLC (f/k/a Hanover Holdings I, LLC),MG Partners, Ltd., and Pallas Holdings, LLC, Defendants.

19 Civ. 1459 (LAP)

United States District Court, S.D. New York

Signed May 4, 2023

Philip Andrew Fortino, Debevoise & Plimpton LLP, New York, NY, Daniel Loss, Alexander Mircea Vasilescu, Lee Attix Greenwood, Sanjay Wadhwa, U.S. Securities and Exchange Commission, New York, NY, John O'Donnell Enright, DOJ-USAO, Brooklyn, NY, for Plaintiff.

Daniel Scott Furst, Michael Hugh Ference, Thomas Patrick McEvoy, Sichenzia Ross Ference LLP, New York, NY, for Defendants Joshua Sason, Magna Management, LLC, Magna Equities II, LLC, MG Partners, Ltd. David Axelrod, Ballard Spahr LLP, Philadelphia, PA, Marjorie Joan Peerce, Ballard Spahr LLP, New York, NY, for Defendant Marc Manuel.

Guy Peter Fronstin, Law Office of Guy Fronstin, P.A., Boca Raton, FL, Jonathan T. Savella, New York, NY, for Defendant Kautilya Sharma.

Marc S. Nurik, Law Office of Marc S. Nurik, Fort Lauderdale, FL, for Defendants Perian Salviola, Pallas Holdings, LLC.

OPINION & ORDER

LORETTA A. PRESKA, Senior United States District Judge:

Before the Court are cross motions for summary judgment. Defendants Joshua Sason, Marc Manuel, Magna Management, LLC (f/k/a Magna Group, LLC) ("Magna"), Magna Equities II, LLC (f/k/a Hanover Holdings I, LLC) ("Hanover"), and MG Partners, Ltd. ("MGP") (together, the "Magna Defendants") move for summary judgment, seeking dismissal of all remaining counts against them.¹ The United States Securities and Exchange Commission ("SEC") opposes the Magna Defendants' motion.²

At the same time, the SEC moves for partial summary judgment against both the Magna and Pallas Defendants regarding the unregistered offering claims.³ The Magna Defendants⁴ and Defendants Kautilya Sharma, Perian Salviola, and Pallas Holdings, LLC (together, the "Pallas Defendants")⁵ oppose the motion. For the reasons below, the Magna Defendants' motion is DENIED. The SEC's motion is GRANTED in part and DENIED in part.

I. Procedural History

On February 15, 2019, the SEC filed a complaint against the Magna and Pallas Defendants containing eight claims for relief. (Dkt. no. 1 (the "Comp.") ¶¶ 159-86.) The first and second claims charged Sason and Hanover with violating Section 17(a)(2) of the Securities Act, (id. at ¶¶ 159-61), and Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5(b), (id. at ¶¶ 162-64). The Court has previously referred to these claims as the "misstatement claims." SEC v. Sason, 433 F. Supp. 3d 496, 513 (S.D.N.Y. 2020).

The third and fourth claims charged Manuel, the Magna Entities, and the Pallas Defendants with violating Sections 17(a)(1) and (3) of the Securities Act, (id. at ¶¶ 165-67), Section 10(b) of the Exchange Act, and Rule 10b-5(a) and (c) (id. at ¶¶ 168-70). The Court has previously referred to these claims as the "scheme liability" claims. Sason, 433 F. Supp. 3d at 508.

The fifth claim charged Sason with control person liability for the Magna Defendants' violations of Section 10(b) of the Exchange Act and Rule 10b-5. (Id. at ¶¶ 171-75.) The sixth claim charged Manual with aiding and abetting the other Magna Defendants' violations of Section 10(b) of the Securities Act, Rule 10b-5, and Section 17(a) of the Securities Act. (Id. at ¶¶ 176-79.) The seventh claim charged the Pallas Defendants with aiding and abetting Hanover, MGP, Sason, and Manuel's violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5. (Id. at ¶¶ 180-83.) The eighth claim charged all Defendants with violating Sections 5(a) and (c) of the Securities Act. (Id. at ¶¶ 184-86.)

Both the Magna and Pallas Defendants moved to dismiss the complaint. (Dkt. nos. 49 and 53.) In an opinion on January 14, 2020, the Court granted the motions to dismiss in part and denied in part. Sason, 433 F. Supp. 3d at 515. The SEC had alleged several schemes to illegally sell unregistered shares of two different companies: a mining company called Lustros, Inc. ("Lustros") and a shipping company called NewLead Holdings Ltd. ("NewLead"). Id. at 503-06. The Court denied the motions to dismiss the scheme liability claims as to certain Lustros Transactions and all the Section 5 claims but dismissed all other claims. Id. at 515. Regarding the NewLead Transactions, the Court dismissed the scheme liability claims against Hanover, MGP, Manuel, and the Pallas Defendants; the misstatement claims against Sason and Hanover; and the aiding and abetting claims against Manuel and the Pallas Defendants. Id. at 510. The Court also dismissed the control person liability claims against Sason. Id. at 514-15.

On June 17, 2022, the Magna Defendants moved for summary judgment, (dkt. no. 138.), seeking the dismissal of the remaining scheme liability claims against Manuel and Magna regarding the Lustros Transactions and the Section 5 claims against all Magna Defendants for both the Lustros and NewLead Transactions, (see Magna Br.). On July 29, 2022, the SEC filed its omnibus motion opposing the Magna Defendants' motion for summary judgment regarding the scheme liability claims and moving for summary judgment against all Defendants regarding the Section 5 claims. (See SEC Omnibus.) On August 29, 2022, the Magna Defendants, (see Magna Omnibus), and the Pallas Defendants, (see Pallas Opp.), filed their oppositions to the SEC's motion for partial summary judgment as to the Section 5 claims. The SEC filed its reply on September 26, 2022. (See SEC Reply.)

II. Legal Standard on Summary Judgment

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). " 'It is the movant's burden to show that no genuine factual dispute exists.' " I.M. v. United States, 362 F. Supp. 3d 161, 189 (S.D.N.Y. 2019) (quoting Vt. Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004)). A genuine dispute of material fact exists if " 'the evidence is such that a reasonable jury could return a judgment for the nonmoving party.' " Roe v. City of Waterbury, 542 F.3d 31, 35 (2d Cir. 2008) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)). "On a motion for summary judgment, a fact is material if it might affect the outcome of the suit under the governing law." Royal Crown Day Care LLC v. Dep't of Health & Mental Hygiene, 746 F.3d 538, 544 (2d Cir. 2014).

" 'In moving for summary judgment against a party who will bear the ultimate burden of proof at trial, the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim.' " In re AXA Equitable Life Ins. Co. COI Litig., 595 F. Supp. 3d 196, 215 (S.D.N.Y. 2022) (quoting Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995)). In ruling on a motion for summary judgment, a court must "construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant." Brod v. Omya, Inc., 653 F.3d 156, 164 (2d Cir. 2011) (quotation marks and citations omitted).

"If the movant meets its burden, 'the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.' " Kayo v. Mertz, 531 F. Supp. 3d 774, 787 (S.D.N.Y. 2021) (quoting Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008)). "The non-moving party 'cannot defeat the motion by relying on the allegations in [its] pleading, or on conclusory statements, or on mere assertions that affidavits supporting the motion are not credible.' " In re AXA, 595 F. Supp. 3d at 215 (quoting Gottlieb v. County of Orange, 84 F.3d 511, 518 (2d Cir. 1996)). The nonmoving party must "create more than a 'metaphysical' possibility that his allegations [a]re correct; he need[s] to 'come forward with specific facts showing that there is a genuine issue for trial.' " Wrobel v. County of Erie, 692 F.3d 22, 30 (2d Cir. 2012) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)).

"When, as in this case, both sides move for summary judgment, the district court is 'required to assess each motion on its own merits and to view the evidence in the light most favorable to the party opposing the motion, drawing all reasonable inferences in favor of that party.' " Nieblas-Love v. New York City Hous. Auth., 165 F. Supp. 3d 51, 64-65 (S.D.N.Y. 2016) (quoting Wachovia Bank, Nat'l Ass'n v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164, 171 (2d Cir. 2011)). "[N]either side is barred from asserting that there are issues of fact, sufficient to prevent the entry of judgment, as a matter of law, against it." Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993).

On summary judgment, "[t]he role of the court is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried." Brod, 653 F.3d at 164 (internal quotation marks omitted). "[A] court's goal should be 'to isolate and dispose of factually unsupported claims.' " I.M., 362 F. Supp. 3d at 190 (quoting Geneva Pharm. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 495 (2d Cir. 2004)). "[A] district court should consider only evidence that would be admissible at trial." Id. (citing Nora Beverages, Inc. v. Perrier Grp. of Am., Inc., 164 F.3d 736, 746 (2d Cir. 1998)).

III. The Lustros Scheme Liability Claims

A. Factual Background on the Three Lustros Transactions

Joshua Sason formed Magna as a Texas LLC in January 2010; he was its managing member, only significant owner, and CEO. (SEC 56.1 ¶¶ 6-7, 10.) Initially,...