Sec. & Exch. Comm'n v. Razmilovic

738 F.3d 14

SECURITIES AND EXCHANGE COMMISSION, Plaintiff–Appellee,

v. Tomo RAZMILOVIC, Defendant–Appellant,Symbol Technologies, Inc., Kenneth Jaeggi, Leonard Goldner, Brian Burke, Michael DeGennaro, Frank Borghese, Christopher DeSantis, James Heuschneider, Gregory Mortenson, James Dean, Robert Donlon, Defendants.

Docket No. 12–0357.

United States Court of Appeals, Second Circuit.

Argued: Feb. 5, 2013.

Decided: July 22, 2013.

Amended: Nov. 26, 2013.

Susan S. McDonald, Senior Litigation Counsel, Securities and Exchange Commission, Washington, D.C. (Mark D. Cahn, General Counsel, Michael A. Conley, Deputy General Counsel, Jacob H. Stillman, Solicitor, Securities and Exchange Commission, Washington, D.C., on the brief), for Plaintiff–Appellee.

Jeffrey B. Coopersmith, Seattle, Washington (John A. Goldmark, Davis Wright Tremaine, Seattle, Washington; Katherine A. Heaton, DLA Piper, Seattle, Washington, on the brief), for Defendant–Appellant.

Before: JACOBS, Chief Judge, KEARSE and CARNEY, Circuit Judges.

KEARSE, Circuit Judge:

Defendant Tomo Razmilovic appeals from so much of a judgment of the United States District Court for the Eastern District of New York, Sandra J. Feuerstein, Judge, as orders him to disgorge to plaintiff Securities and Exchange Commission (“SEC”) $41,753,623.04, plus prejudgment interest in the amount of $27,260,953.99, and to pay a civil penalty of $22,876,811.52, for violations of various provisions of the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”) (collectively the “1933 and 1934 Acts”). The district court entered a default against Razmilovic as a sanction for his refusal to comply with an order to appear for his deposition in the United States; the court ordered Razmilovic to pay the above amounts following an evidentiary hearing. On appeal, Razmilovic contends principally that the district court (1) abused its discretion in imposing a default, rather than a less severe sanction, for his refusal to appear for his deposition, and (2) erred in its calculations of the disgorgement, prejudgment interest, and statutory penalty amounts. Razmilovic also contends, principally in connection with the proceedings on relief, that the district judge exhibited bias in favor of the SEC and against Razmilovic and should have recused herself. For the reasons that follow, we find no error or abuse of discretion in the entry of the default, the denial of Razmilovic's recusal motion, and the disgorgement award. However, we remand for recalculation of prejudgment interest and for the clerical correction of a discrepancy between the amount of the civil penalty ordered in the district court's ruling and the amount of the penalty awarded in the judgment.

I. BACKGROUND

This is a civil enforcement action brought by the SEC against defendant Symbol Technologies, Inc. (“Symbol”), a supplier of mobile information systems using handheld electronic devices for barcode and other data capture technology, and various officers and employees of Symbol, alleging that the defendants engaged in fraudulent and manipulative practices in violation of, inter alia, § 10(b) of the Exchange Act and Rule 10b–5 thereunder, § 13(b)(5) of the Exchange Act and § 17(a) of the Securities Act, and various rules promulgated under the latter sections. The complaint's well-pleaded allegations as to Razmilovic's liability, which, in light of his default, are deemed admitted, see Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir.1992), cert. denied,506 U.S. 1080, 113 S.Ct. 1049, 122 L.Ed.2d 357 (1993), include the following.

Razmilovic was Symbol's president and chief operating officer (“COO”) from 1995 through June 2000, its President and Chief Executive Officer (“CEO”) from July 2000 until February 2002, and a member of its board of directors from 1995 to February 2002. “From at least 1998 until as recently as February 2003,” Razmilovic and others “engaged in a wide array of fraudulent accounting practices and other misconduct that had a cumulative net impact of over $230 million on Symbol's reported revenue and over $530 million on its reported pre-tax earnings.” (Complaint ¶ 1.) That conduct included entering into artificial swap transactions and other fraudulent schemes, publishing false reports of earnings, issuing fraudulent press releases, and filing false reports or registration statements with the SEC. ( See, e.g., id. ¶¶ 44–48, 143.) Razmilovic regularly authorized changes to quarterly reports in order to conform Symbol's reported results to management's prior forecasts. For example, on one occasion, management's prediction was matched by making fraudulent adjustments, authorized by Razmilovic, that made a $2.5 million quarterly loss appear to be a $13.4 million gain. ( See Complaint ¶ 40(f).) The frauds are described in greater detail in the district court's Memorandum of Decision dated September 30, 2011, and reported at 822 F.Supp.2d 234 (“September 2011 Opinion ”), familiarity with which is assumed.

Razmilovic received bonuses and other compensation directly related to Symbol's performance. He also profited from the frauds because they artificially inflated Symbol's stock price, and he had received as compensation for his employment thousands of Symbol stock options that he was able to exercise at prices well below the inflated market price and to sell at that market price. In the present action, commenced in June 2004, the SEC sought—and largely won—a judgment that would, inter alia, enjoin Razmilovic from further violations of the securities laws, bar him from again serving as an officer or director of any public company, require him to disgorge all executive compensation he had received from Symbol from 1998 onward and all profits from his securities violations, plus prejudgment interest on those sums, and order him to pay penalties authorized by the 1933 and 1934 Acts. As to the relief ordered by the district court, only the monetary awards are at issue on this appeal.

A. The Criminal Case and Razmilovic's Default in the Present Case

In mid–2004, prior to the filing of the present complaint, an indictment was handed down in the United States District Court for the Eastern District of New York against Razmilovic and his codefendants, charging them with violations of the securities laws. Razmilovic, who was in Europe at the time, has not since returned to the United States. He is considered a fugitive by the United States Department of Justice (“Justice Department”).

In 2004 in the present case, Judge Leonard D. Wexler, to whom the case was then assigned, granted a motion by those defendants who were not fugitives for a stay of these proceedings pending resolution of the criminal case. Razmilovic's motion for that relief was denied on the ground of his fugitivity, and he timely filed an answer, denying the material allegations of the complaint; the SEC agreed to postpone discovery until the stay granted by the district court was lifted.

In September 2007, the case was reassigned to Judge Feuerstein, who lifted the stay in October 2007. In July 2009, the court set a tentative date for trial in January 2010. Promptly thereafter, the SEC served Razmilovic with notice that his deposition would be taken at the SEC's office in New York City on September 28, 2009.

In a letter dated September 11, 2009, Razmilovic's counsel informed the SEC that Razmilovic was “abroad,” and asked the SEC to “let us know whether you wish to make arrangement to take Mr. Razmilovic's deposition abroad, either in person or by videoconference or telephone.” (Letter from Jeffrey B. Coopersmith to Todd D. Brody dated September 11, 2009.) The SEC rejected these alternatives. Razmilovic's counsel informed the SEC that Razmilovic would not come to the United States.

On September 29, 2009, after Razmilovic failed to appear for the scheduled September 28 deposition, the SEC moved for an order compelling him to appear for his deposition in New York. Razmilovic cross-moved to have his deposition taken via videoconference pursuant to Fed.R.Civ.P. 30(b)(4).

In an Order dated October 9, 2009 (“October 2009 Order”), the district court granted the SEC's motion and denied that of Razmilovic. The court ordered Razmilovic “to appear in person, on a mutually agreeable date on or before October 22, 2009, as provided in plaintiff's notice of deposition.” October 2009 Order at 1. The court warned that “[f]ailure of Mr. Razmilovic to appear in person for a deposition on or before October 22, 2009 may result in sanctions being imposed against him and/or his attorneys pursuant to Rule 37(b)(2)(A), including a default judgment being entered against him.” October 2009 Order at 1.

The SEC thereafter proposed to Razmilovic several alternative dates for his deposition. On October 15, Razmilovic informed the SEC that, despite the court's October 2009 Order, he would not appear for the deposition.

On December 10, the SEC moved pursuant to Fed.R.Civ.P. 37(b)(2)(A)(vi) for entry of a default judgment against Razmilovic as a sanction for his refusal to obey the court's order to appear for his deposition. Razmilovic opposed the motion. He acknowledged that his violation of the court order “may result in some form of sanction” but argued that a default judgment was drastic, the “harshest of sanctions,” and was not warranted because “lesser, effective sanctions may be imposed.” (Razmilovic Memorandum of Law in Opposition to Motion for Sanctions (“Razmilovic Sanctions Memorandum”) at 4–5.) Razmilovic proposed, for example, that he instead be barred from disputing certain facts or asserting certain defenses, or be required to appear for his deposition in Sweden and to pay for the expenses of the deposition. ( See id. at 5–6.) Razmilovic also argued that a default judgment would be improper because, in his view, the Supreme Court, in Degen v. United States, 517 U.S. 820, 116 S.Ct. 1777, ...