Sec. & Exch. Comm'n v. Razmilovic

822 F.Supp.2d 234

SECURITIES and EXCHANGE COMMISSION, Plaintiff,

v.Tomo RAZMILOVIC, Brian Burke, Frank Borghese, James Dean, Robert Donlon and Gregory Mortenson, Defendants.

No. CV–04–2276 (SJF)(WDW).

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

Sept. 30, 2011.

Burk Burnett, Edwin Henry Nordlinger, Jimmy Fokas, Todd Daniel Brody, Joseph Patrick Dever, Jr., Securities & Exchange Commission, George N. Stepaniuk, Jess A. Velona, Joseph O. Boryshansky, U.S. Securities and Exchange Commission, New York, NY, for Plaintiff.

David E. Nachman, DLA Piper US LLP, Bradley Drew Simon, Simon & Partners LLP, Gordon Mehler, Gordon Mehler, Attorney at Law, New York, NY, Jeffrey B. Coopersmith, DLA Piper US LLP, Seattle, WA, for Defendants.

MEMORANDUM OF DECISION

FEUERSTEIN, District Judge.

I. Procedural History

On June 3, 2004, the Securities and Exchange Commission (“SEC”) commenced this action against defendant Tomo Razmilovic (“Razmilovic”), and others ¹, alleging claims, inter alia, for violations of Section 17(a) of the Securities Act of 1933 (“the Securities Act”), 15 U.S.C. § 77q(a); Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934 (“the Exchange Act”), 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2) and 78m(b)(5), and Rules 10b–5, 12b–20, 13a–1, 13a–13, 13b2–1 and 13b2–2 thereunder, 17 C.F.R. §§ 240.10b–5, 240.12b–20, 240.13a–1, 240.13a–13, 240.13b2–1 and 240.13b2–2. The SEC seeks, inter alia: (1) to permanently enjoin Razmilovic from future violations of the securities laws, from controlling any person who violates the securities laws and from acting as an officer or director of a public company; (2) disgorgement of all profits realized by Razmilovic as a result of his violations of the securities laws, including prejudgment interest thereon; and (3) civil monetary penalties pursuant to Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3), and Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d). (Compl., ¶ 14, pp. 78–82).

On July 21, 2009, the SEC served Razmilovic's counsel with a notice to take Razmilovic's deposition at the SEC's offices in New York on Monday, September 28, 2009. ( See Motion to Compel, Doc. No. 100, Ex. B). Razmilovic's counsel informed the SEC that Razmilovic refused to appear for a deposition in the United States ² and alternatively proposed conducting an in-person deposition of Razmilovic in Sweden or a deposition via videoconference. ( Id., Ex. F). By order dated October 9, 2009, I, inter alia, granted the SEC's subsequent motion to compel the deposition of Razmilovic in person on or before October 22, 2009, as provided in the SEC's notice of deposition; denied Razmilovic's motion to conduct his deposition via videoconference; and advised that Razmilovic's failure to appear in person for the deposition as noticed could result in sanctions being imposed against him and/or his attorneys pursuant to Rule 37(b)(2)(A) of the Federal Rules of Civil Procedure, including the entry of a default judgment against him. (Doc. No. 109). Razmilovic failed to appear for the deposition as directed by the October 9, 2009 order.

On December 21, 2009, the SEC moved, pursuant to Rule 37 of the Federal Rules of Civil Procedure, for a default judgment against Razmilovic based upon his failure to comply with this Court's October 9, 2009 order. (Doc. No. 137). On December 22, 2009, I granted the SEC's motion for a default judgment against Razmilovic pursuant to Rule 37 of the Federal Rules of Civil Procedure based upon his failure to comply with this Court's October 9, 2009 order. By order dated February 25, 2010, 2010 WL 744359, I denied Razmilovic's motion for reconsideration of the December 22, 2009 order.

On March 15, 2010, a bench trial commenced to determine the appropriate remedies for Razmilovic's violations of the securities laws established by the entry of a default judgment against him. The SEC rested its case-in-chief on that date. The following day, the trial was continued to May 10, 2010 ³. On March 17, 2010, at my request, counsel for Razmilovic filed a joint proposed scheduling order which directed, inter alia: (1) the SEC to (a) notify Razmilovic's counsel by March 19, 2010 if it intended to call an expert witness, (b) provide Razmilovic's counsel with the name and curriculum vitae of any such expert witness immediately upon the selection of that expert and (c) serve upon Razmilovic's counsel an expert witness report on or before April 9, 2010; (2) Razmilovic to serve on the SEC's counsel any revised or updated expert report by his previously-identified expert witness on or before April 9, 2010; and (3) both parties to submit to the Court no later than April 30, 2010 a revised joint pretrial order, reflecting any additional exhibits and/or witnesses either party proposed to offer or call during the continued trial. That proposed order was approved and signed by me on March 18, 2010 and entered as an order of the Court on March 19, 2010.

On April 5, 2010, Razmilovic filed a motion for judgment on partial findings pursuant to Rule 52(c) of the Federal Rules of Civil Procedure. On April 12, 2010, I granted, over Razmilovic's objection, the SEC's motion to reopen its case-in-chief to call Edward S. O'Neal ⁴ as an expert witness and to admit into evidence O'Neal's report and two (2) additional exhibits.

By order entered June 15, 2010, I, inter alia, denied Razmilovic's motion for judgment on partial findings. During the proceedings on June 21, 2010, I, inter alia, denied the parties' respective motions to exclude the testimony of each other's expert witness at trial and, over the SEC's objection, granted Razmilovic's request to determine the remaining issues upon submission of experts' reports, deposition transcripts and post-hearing briefs. Accordingly, the trial was adjourned sine die and a briefing schedule was set. The following constitutes my findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.

II. Findings of Fact

A. Employment Agreements

1. Razmilovic was the president and chief operating officer of Symbol from 1995 through June 2000. (Complaint [Compl.], ¶ 18; Trial Exhibits [TE.], 4 (Employment Agreement between Symbol and Razmilovic dated October 16, 1995 [“1995 Employment Agreement”] )).

2. In consideration of the services rendered by Razmilovic under the 1995 Employment Agreement, Symbol agreed, inter alia, to compensate him with a base salary and an annual bonus to be determined pursuant to Symbol's Executive Bonus Plan. (TE 4, ¶¶ 4(a) and (b)).

3. As set forth in its 2000, 2001 and 2002 Proxy Statements, Symbol's “executive compensation program” (“ECP”):

“Relate[s] compensation to performance. Overall compensation paid to senior executives should be tied to how well [Symbol] performs financially. * * *

It is [Symbol's] policy to pay its senior executives at levels that reflect [Symbol's] financial performance relative to comparable organizations. * * * The three elements of [Symbol's] [ECP] are: Base salary[,] Executive Bonus Plan[,] [and] Stock option awards. * * *

* * * Adjustments in base salary are generally not based upon the financial performance of [Symbol]. * * *

[Symbol] promotes a pay-for-performance philosophy. A significant element of annual compensation is linked to the financial performance of [Symbol]. * * * The purpose of the [Executive Bonus Plan] is to tie the level of annual executive incentive compensation to the financial performance of [Symbol]. * * *

Under the Executive Bonus Plan, each year [Symbol] establish[es] corporate financial performance objectives * * *, based on earnings per share. [Symbol] ha[s] identified three levels of performance: threshold performance, at which the minimum award (one-half a participant's target bonus) will be earned and below which no award will be earned[;] target performance, at which the target award will be earned; and maximum performance, at which the maximum award (twice a participant's target bonus) will be earned and above which no additional award will be earned. * * * ”

* * * Stock options provide employees with the opportunity to become shareholders of [Symbol], and to participate in the creation of shareholder value as reflected in growth in the price of [Symbol's] common stock.

Option exercise prices are equal to 100% of the fair market value of [Symbol's] common stock on the date of option grant. This ensures that participants will derive benefit only as shareholders realize corresponding gains. * * *

* * * We believe that granting stock options reinforces [Symbol's] objective of insuring a strong link between employee rewards and shareholder interests. * * *

* * * We firmly believe that the long term interests of [Symbol's] shareholders are best served when management maintains a significant, equity-based interest in [Symbol]. We consider both vested, unexercised options and shares owned as meaningful expressions of such interest. We developed a [stock ownership and option retention] program with target levels of equity interest for each executive officer. Under the program, * * *, if an executive has not attained the minimum requirements described [therein], his ability to exercise options or sell shares is limited. * * *

The program limits the exercise of vested options * * * unless the executive meets and will continue to meet the equity interest requirement * * *. The equity interest requirement provides that the combined value of [Symbol's] common stock and vested options held by the executive, each valued at the then market price of [Symbol's] common stock, must be equal to or greater than a designated multiple of the executive's annual base salary plus target bonus.

If the equity interest requirement is satisfied, the program allows for the exercise of vested options within strict limits. * * *.”

(TE 11 (Symbol's Proxy Statement dated March 15, 2000 [“2000 Proxy Statement”] ), at 10–13; TE 12 ...