U.S. Sec. & Exch. Comm‘n v. Verdiramo

907 F.Supp.2d 367

UNITED STATES SECURITIES and EXCHANGE COMMISSION, Plaintiff,

v.Richard VERDIRAMO, Vincent L. Verdiramo, Edward Meyer, Jr., and Victoria Chen, Defendants.

No. 10 Civ. 1888(RMB)(AJP).

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

Jan. 13, 2012.

Beth Collier Groves, US Securities and Exchange Commission, Dean Michael Conway, Securities and Exchange Commission, Washington, DC, for Plaintiff.

Victoria Chen, Vancouver, BC, pro se.

ORDER

RICHARD M. BERMAN, District Judge.

I. Background

On November 10, 2011, United States Magistrate Judge Andrew J. Peck issued a Report and Recommendation (“Report”), following this Court's December Order dated September 9, 2011, recommending that this Court order “(1) Victoria Chen to disgorge $40,284 and pay $16,453 in prejudgment interest; (2) Vincent Verdiramo to disgorge $42,938 and pay $15,827 in prejudgment interest; and (3) Richard Verdiramo to be jointly and severally liable with Chen, Meyer and Vincent Verdiramo for $307,769 in disgorgement and $120,356 in prejudgment interest.” (Report, dated November 10, 2011, at 2.) At a conference before this Court on December 19, 2011, the SEC, Richard Verdiramo, and Vincent Verdiramo advised the Court that they would not challenge the findings of Magistrate Judge Peck on the remedies related to the summary judgment motion. (Transcript of Proceedings, dated December 19, 2011, at 3.)

For the reasons set forth below, the Court adopts the unopposed Report in its entirety.

II. Standard of Review

“The Court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b). “To accept the report and recommendation of a magistrate, to which no timely objection has been made, a district court need only satisfy itself that there is no clear error on the face of the record.” Cobalt Multifamily Investors I, LLC v. Bridge Capital (USVI), LLC, No. 06 Civ. 5738, 2007 WL 2584926, at *1, 2007 U.S. Dist. LEXIS 66349, at *2–3 (S.D.N.Y.2007) (quoting Nelson v. Smith, 618 F.Supp. 1186, 1189 (S.D.N.Y.1985)).

III. Analysis

The facts and procedural history set forth in the Report are incorporated herein by reference. Having conducted a review of, among other things, the Complaint, the Decision and Order, the Report, and applicable legal standards, the Court finds that the Report is not clearly erroneous or contrary to law as to any of Victoria Chen, Vincent Verdiramo, or Richard Verdiramo. See Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91 (2d Cir.1997).

IV. Conclusion and Order

For the reasons stated herein and therein, the Report is adopted in its entirety.

Victoria Chen is ordered to disgorge $40,284 and to pay $16,453 in prejudgment interest, Vincent Verdiramo is ordered to disgorge $42,938 and to pay $15,827 in prejudgment interest, and Richard Verdiramo is jointly and severally liable with Chen, Meyer, and Vincent Verdiramo for $307,769 in disgorgement and $120,356 in prejudgment interest. The SEC is directed to submit a proposed judgment in accordance with this Order.

REPORT AND RECOMMENDATION

ANDREW J. PECK, United States Magistrate Judge.

To the Honorable Richard M. Berman, United States District Judge:

On March 10, 2010, the Securities and Exchange Commission (“SEC”) filed a complaint alleging, inter alia, that Richard Verdiramo, Vincent Verdiramo, Edward Meyer and Victoria Chen violated Section 5 of the Securities Act of 1933 (“Securities Act”) through unregistered stock sales.¹ (Dkt. No. 1: Compl.) On September 9, 2011, Judge Berman granted summary judgment in favor of the SEC, ordered defendants to disgorge their illegally obtained profits and referred this case to me for a determination of the appropriate amount of disgorgement. U.S. SEC v. Verdiramo, 890 F.Supp.2d at 261–78, 2011 WL 4344310 at *1–15;see also Dkt. No. 96: Order of Reference.

For the reasons discussed below, the Court should order (1) Victoria Chen to disgorge $40,284 and pay $16,453 in prejudgment interest; (2) Vincent Verdiramo to disgorge $42,938 and pay $15,827 in prejudgment interest; and (3) Richard Verdiramo to be jointly and severally liable with Chen, Meyer and Vincent Verdiramo for $307,769 in disgorgement and $120,356 in prejudgment interest.

FACTS

Although familiarity with the facts recited in Judge Berman's summary judgment decision is assumed, the following facts are relevant to the issue of disgorgement.

Vincent Verdiramo founded RECOV in March 1994, and served as its Chairman, C.E.O. and President until March 1, 2000. U.S. SEC v. Verdiramo, 890 F.Supp.2d 263, 264, 10 Civ. 1888, 2011 WL 4344310 at *3 (S.D.N.Y. Sept. 9, 2011) (Berman, D.J.). Since March 2000, Vincent's son Richard Verdiramo has served as RECOV's Chairman, C.E.O., C.F.O. and President. U.S. SEC v. Verdiramo, 890 F.Supp.2d at 263, 2011 WL 4344310 at *3.

Pursuant to an April 7, 2005 RECOV board resolution signed by Richard Verdiramo (acting as RECOV's President), RECOV's transfer agent issued 333,334 shares of unrestricted common stock to Edward Meyer; ² 333,333 shares to Greenwood Capital Holdings, Inc., a company controlled by Victoria Chen; 126,000 shares to Public Entity Acquisition Corp., a company controlled by Vincent and RichardVerdiramo; and 300,000 shares to Illuminate International Corp., a company controlled by Vincent Verdiramo. U.S. SEC v. Verdiramo, 890 F.Supp.2d at 263–65, 2011 WL 4344310 at *3–4.

Within months of obtaining the RECOV stock, Chen sold 158,333 shares for $40,284, Vincent Verdiramo sold 109,000 shares for $42,938 and Meyer sold approximately 500,000 shares for $224,547. U.S. SEC v. Verdiramo, 890 F.Supp.2d at 264, 267, 272, 2011 WL 4344310 at *4, *7, *11; Dkt. No. 49: Conway 12/23/10 Aff. Exs. 14R–19R: V. Verdiramo, Meyer & Chen Brokerage Records; Dkt. No. 74: SEC SJ Reply Br. at 2 nn. 2 & 4, 3 n.5. The defendants, however, failed to file registration statements with the SEC for their sales of RECOV stock. U.S. SEC v. Verdiramo, 890 F.Supp.2d at 265, 2011 WL 4344310 at *5. Consequently, Judge Berman found that Chen and Vincent Verdiramo violated Section 5 of the Securities Act,³ which makes it “unlawful for any person to use the channels of interstate commerce ⁴ to sell a security unless a registration statement is in effect as to such security.” U.S. SEC v. Verdiramo, 890 F.Supp.2d at 267–73, 2011 WL 4344310 at *7–11.⁵ Judge Berman also ruled that “Richard Verdiramo violated Section 5 because he was a necessary and substantial participant in the unregistered sales of RECOV shares by Chen, Meyer, and his father, Vincent Verdiramo,” noting that Richard Verdiramo “personally authorized and directed the issuance of the RECOV shares” to his co-defendants “that were later sold in unregistered transactions.” U.S. SEC v. Verdiramo, 890 F.Supp.2d at 271, 273 n. 12, 2011 WL 4344310 at *10, *11 n. 12.

Judge Berman ordered that “Vincent Verdiramo, Chen, and Richard Verdiramo are obligated to disgorge profits from the unregistered sale of shares ... because the ‘deterrent effect of an SEC enforcement would be greatly undermined if securities law violators were not required to disgorge illicit profits.’ ” U.S. SEC v. Verdiramo, 890 F.Supp.2d at 277, 2011 WL 4344310 at *15.

ANALYSIS

A. Applicable Legal Standards

“It is well-settled that disgorgement is an appropriate remedy for breach of federal securities laws.” Cobalt Multifamily Investors I, LLC v. Arden, 06 Civ. 6172, 2011 WL 4595196 at *7 (S.D.N.Y. Sept. 9, 2011), report & rec. adopted,857 F.Supp.2d 349 (S.D.N.Y.2011).⁶ “The primary purpose of disgorgement as a remedy for violation of the securities laws is to deprive violators of their ill-gotten gains, thereby effectuating the deterrence objectives of those laws.” SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474 (2d Cir.1996), cert. denied,522 U.S. 812, 118 S.Ct. 57, 139 L.Ed.2d 21 (1997).⁷ “The district court has broad discretion not only in determining whether or not to order disgorgement but also in calculating the amount to be disgorged.” SEC v. First Jersey Sec., Inc., 101 F.3d at 1474–75.⁸ “ ‘[D]isgorgement need only be a reasonable approximation of profits causally connected to the violation.’ ” SEC v. Patel, 61 F.3d 137, 139 (2d Cir.1995).⁹ “ ‘After a plaintiff makes a showing of the amount properly to be disgorged, the burden then shifts to the defendant who must clearly demonstrate that the amount claimed by the plaintiff is not a reasonable approximation.’ ” SEC v. Neurotech Dev. Corp., 2011 WL 1113705 at *2.¹⁰ “So long as the measure of disgorgement is reasonable, ‘any risk of uncertainty should fall on the wrongdoer whose illegal conduct created the uncertainty.’ ” SEC v. Warde, 151 F.3d 42, 50 (2d Cir.1998).¹¹

In formulating a disgorgement remedy, the court has discretion to impose “joint and several liability for combined profits on collaborating or closely related parties.” SEC v. AbsoluteFuture.com, 393 F.3d 94, 97 (2d Cir.2004).¹² The total disgorgement, however, “cannot exceed the combined profits of the defendants.” SEC v. AbsoluteFuture.com, 393 F.3d at 97.¹³

Additionally, a “court can award prejudgment interest on the amount ... awarded as disgorgement, in order to deprive the defendant of the time-value of the money.” SEC v. Anticevic, 2010 WL 3239421 at *5 (citing SEC v. Warde, 151 F.3d at 50).¹⁴ As the Second Circuit has noted:

The decision whether to grant prejudgment interest and the rate used if such interest is granted are matters confided to the district court's broad discretion, and will not be overturned on appealabsent an abuse of that discretion. In deciding whether an award of prejudgment interest is warranted, a court should consider (i) the need to fully compensate the wronged party for actual damages suffered, (ii) considerations of fairness and the relative equities of the award, (iii) the remedial purpose of the statute involved, and/or (iv) such other general principles as are deemed relevant by the court....