Securities and Exchange Commission v. Catledge et al, No. 2:2012cv00887 - Document 84 (D. Nev. 2020)
Court Description: ORDER granting 81 Motion to Set Aside; this court's order granting final judgment (ECF No. 78) and the corresponding judgment (ECF No. 79) be, and the same hereby are, AMENDED (see order for details). Signed by Judge James C. Mahan on 7/2/2020. (Copies have been distributed pursuant to the NEF - JM)
Download PDF
<![CDATA[
Securities and Exchange Commission v. Catledge et al Doc. 84 1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 *** 7 8 SECURITIES AND EXCHANGE COMMISSION, ORDER Plaintiff(s), 9 v. 10 11 JAMES B. CATLEDGE, et al., Defendant(s). 12 13 Presently before the court is defendant James Catledge’s motion to set aside and/or 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Case No. 2:12-CV-887 JCM (NJK) amend order and judgment pursuant to FRCP 52, 59, and 60. (ECF No. 81). Plaintiff Securities and Exchange Commission (“SEC”) filed a response (ECF No. 82), to which defendant replied (ECF No. 83). I. Background On May 24, 2012, the SEC filed a complaint against Catledge, Derek F.C. Elliott, EMI Resorts (S.V.G.) Inc., EMI Sun Village, and Sun Village Juan Dolio, Inc., alleging the defendants solicited investments in a fraudulent scheme involving the offer and sale of over $163 million of investment contracts in unregistered transactions to approximately 1,200 investors. (ECF No. 1). The complaint includes five causes of action: (1) violation of Section 17(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77q(a)(1), against all defendants; (2) violation of Section 17(a)(2) and (3) of the Securities Act, 15 U.S.C. § 77q(a)(2) and (3), against all defendants1; (4) violation of Sections 5(a) and (c) of the Securities Act, 15 U.S.C. § 77e(a) and (c), against Catledge, Elliott, EMI Sun Village, and Sun Village Juan Dolio; (5) violation of Section 15(a) of 28 1 The complaint omits a third cause of action. (ECF No. 1). James C. Mahan U.S. District Judge Dockets.Justia.com 1 the Exchange Act, 15 U.S.C. § 780(a), against Catledge and Elliott; and (6) unjust enrichment of 2 relief defendant D.R.C.I. trust. Id. 3 On December 20, 2012, and SEC and Catledge filed a joint stipulation to stay this case 4 pending resolution of the criminal charges against Catledge in United States v. James Catledge, 5 et al., case no. 3:12-cr-00678 (N.D. Cal.) (“criminal action”). (ECF No. 20). The court granted 6 the motion to stay on December 21, 2012. (ECF No. 23). 7 On May 2, 2018, Catledge pleaded guilty to one count of mail fraud. Catledge, case no. 8 3:12-cr-00678, ECF Nos. 241, 242. On December 12, 2018, he was sentenced to a term of sixty 9 (60) months imprisonment to be followed by three (3) years of supervised release. Id. at ECF 10 No. 303. Restitution in the amount of $32,737,143.65 was imposed on May 15, 2019. Id. at 11 ECF No. 339. 12 On May 3, 2018, the court approved a consent judgment between the SEC and Catledge. 13 (ECF No. 44). The Catledge consent judgment fully incorporates the stipulated consent, which 14 provides, in relevant part, that: 15 16 17 18 19 20 [T]he Court shall determine whether it is appropriate to order disgorgement of illgotten gains and/or a civil penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and, if so, the amount(s) of the disgorgement and/or civil penalty. The Defendant further understands that, if disgorgement is ordered, Defendant shall pay prejudgment interest thereon, calculated from October, 2004, based on the rate of interest used by the Internal Revenue Service for the underpayment of federal income tax as set forth in 26 U.S.C. § 6621(a)(2). (ECF Nos. 43 at 2, 44 at 4). The consent judgment also provides that “solely for the purposes of such motion [for disgorgement], the allegations of the [c]omplaint shall be accepted as and 21 22 deemed true by the [c]ourt.” (ECF No. 44). No provision is made for the imposition of a civil penalty. Id. In addition, the Catledge consent judgment provides for the issuance of a permanent 23 injunction, enjoining future violation of the federal Securities Act and Exchange Act. Id. 24 On June 28, 2019, the SEC filed a motion to lift the stay (ECF No. 56) following the 25 resolution of the criminal action against Catledge, which this court granted on July 3, 2019 (ECF 26 No. 57). 27 In their initial motion for final judgment as to Catledge, the SEC asked this court to 28 James C. Mahan U.S. District Judge “order Catledge to pay $32,737,143.65 in disgorgement but deem it satisfied based upon the -2- 1 entry of the restitution order in that amount, and not impose any prejudgment interest.” (ECF 2 No. 58 at 4). The SEC also asked this court to issue a permanent injunction against Catledge, 3 enjoining him from future violation of the federal Securities Act and Exchange Act. Id. 4 On September 18, 2019, the court ordered the SEC to submit supplemental briefing to 5 explain how the approximately $163 million taken from investors was used. (ECF No. 63). In 6 that same order, the court declined to issue a civil penalty against Catledge. Id. The SEC 7 submitted its response on October 2, 2019. 8 disgorgement in the amount $32,737,143.65. Id. (ECF No. 69). The SEC again requested 9 In light of the Supreme Court’s decision in Kokesh v. S.E.C., 137 S. Ct. 1635 (2017),2 the 10 court ordered additional supplemental briefing. (ECF No. 72). The SEC was directed to explain 11 what amount of the approximately $163 million at issue was appropriated by the defendants prior 12 to May 24, 2007. Id. The SEC submitted its response on November 26, 2019. (ECF No. 75). 13 The SEC then sought disgorgement in the amount of $6,375,927.58. Id. 14 On December 16, 2019, this court ordered final judgment against Catledge, finding, in 15 part, that he was liable for $56,920,276.24 in disgorgement. (ECF Nos 78; 79). Catledge timely 16 filed a motion to set aside the court’s order and corresponding judgment. (ECF No. 81). The 17 SEC filed a response (ECF No. 82), to which Catledge replied (ECF No. 83). 18 II. 19 20 21 22 Legal Standard Rule 59(e) “permits a district court to reconsider and amend a previous order[;]” however, “the rule offers an extraordinary remedy, to be used sparingly in the interests of finality and conservation of judicial resources.” Carroll v. Nakatani, 342 F.3d 934, 945 (9th Cir. 2003) (internal quotations omitted). A motion for reconsideration “should not be granted, absent 23 highly unusual circumstances.” Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th 24 Cir. 2000). 25 26 On one hand, a motion for reconsideration “may not be used to raise arguments or present evidence for the first time when they could reasonably have been raised earlier in the litigation.” 27 28 James C. Mahan U.S. District Judge In Kokesh, the Supreme Court held that “[d]isgorgement in the securities enforcement context” is a “penalty” subject to a five-year limitations period. 137 S. Ct. at 1639 (2017). 2 -3- 1 Kona Enters., Inc., 229 F.3d at 890. On the other hand, “[a] movant must not repeat arguments 2 already presented unless (and only to the extent) necessary to explain controlling, intervening 3 law or to argue new facts. A movant who repeats arguments will be subject to appropriate 4 sanctions.” LR 59-1(b). 5 Thus, the Ninth Circuit has provided that “[r]econsideration is appropriate if the district 6 court (1) is presented with newly discovered evidence, (2) committed clear error or the initial 7 decision was manifestly unjust, or (3) if there is an intervening change in controlling law.” 8 School Dist. No. 1J v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); Fed. R. Civ. P. 60(b). 9 “A motion to alter or amend a judgment must be filed no later than 28 days after the entry of the 10 judgment.” Fed. R. Civ. P. 59(e). 11 III. 12 13 14 15 Discussion During the pendency of this motion, the Supreme Court issued its decision in Liu v. SEC, 591 US __ (2020). The Court determined that “a disgorgement award that does not exceed a wrongdoer’s profits and is awarded for victims is equitable relief” and clarified that disgorgement should be limited to “net profits from wrongdoing after deducting legitimate 16 expenses.” Id. In light of Liu and the parties’ motion to amend the judgment under Rule 59, this 17 court will amend its order of final judgment as to the disgorgement.3 18 Central to this court’s reconsideration is the Supreme Court’s delineation of net profits 19 being the only proceeds subject to disgorgement. See id. In court-ordered supplemental briefing 20 on the motion for judgment, the SEC identified a total of $163.8 million involved in the instant 21 24 suit, accounted for as follows: Investment Funds Raised from Investors: Funds Returned to Investors: Funds Properly Invested in Cofresi and Juan Dolio: Commissions: Funds Diverted to Separate Ventures, Operating Expenses, or Otherwise: 25 (ECF No. 69). 22 23 $163.8 million $6.8 million $8 million $58.9 million $90.1 million 26 27 3 28 James C. Mahan U.S. District Judge The court will not revisit its order of final judgment as it pertains to the injunctive relief. The parties do not contest the injunctive relief and argue only the disgorgement. (See ECF Nos. 81; 82; 83). -4- 1 While the funds in the first two categories may have benefitted Catledge, they are not net 2 profits. Therefore, considering the Supreme Court’s ruling in Liu, this court will not include the 3 funds properly invested or returned to investors—totaling $14.8 million—as part of the 4 disgorgement order. 5 The court will not consider funds that Catledge never controlled to be part of the 6 disgorgement order. This would eliminate the $90.1 million in the last category, as well as the 7 total in commissions that went to other parties. Thus, the court will accept that Catledge 8 received at least $30,285,656 over the entire alleged period from 2004–2009. 9 Further, the court finds upon review that the SEC calculation of income per quarter is an 10 accurate assessment. Id. Dividing the total amount Catledge received by the nineteen fiscal 11 quarters involved results in a quarterly average of $1,593,981,89. There are a total of eight fiscal 12 quarters within the five-year statute of limitations. See Kokesh v. SEC, 137 S. Ct. 1635 (2017). 13 This means, at most, $12,751,855.16 is eligible for a disgorgement order. (ECF No. 69). 14 Finally, upon reconsideration, the court credits the statement in the plea agreement in the 15 parallel case that Catledge and his company stopped sales in July 2008. See Catledge, No. 3:12- 16 cr-00678 (N.D. Cal.). Catledge’s only involvement in the instant conduct was through his sales 17 organization. Catledge did not receive net profit when he was not involved. (See ECF No. 75). 18 Therefore, Catledge is liable for the average amount over the four fiscal quarters in which he was 19 involved in the fraud during the statute of limitations, a total of $6,375.927.58. 20 This calculation embodies the terms the parties set out in the settlement agreement. (See 21 ECF Nos. 58; 81; 82). The court will deem this disgorgement satisfied in full by the restitution 22 ordered in the parallel criminal proceeding. See Catledge, No. 3:12-cr-00678 (N.D. Cal.) at 23 ECF No. 339. Therefore, Cateldge will not be liable for prejudgment interest, as the SEC 24 concedes in its motion for final judgment. (ECF No. 58 at 3). Prejudgment interest is designed 25 to make whole defrauded investors. See SEC v. Vassallo, 22 F. Supp. 3d 1063, 1067 (E.D. Cal. 26 2014). The investors have already been made whole by the restitution order in the parallel 27 criminal proceeding. There is no need to duplicate judgment against Catledge. 28 ... James C. Mahan U.S. District Judge -5- 1 IV. Conclusion 2 Accordingly, 3 IT IS HEREBY ORDERED, ADJUDGED, and DECREED that defendant’s motion to 4 reconsider (ECF No. 81) be, and the same hereby is, GRANTED. 5 IT IS FURTHER ORDERED that this court’s order granting final judgment (ECF No. 6 78) and the corresponding judgment (ECF No. 79) be, and the same hereby are, AMENDED, as 7 follows. 8 IT IS FURTHER ORDERED that Cateledge is liable for disgorgement in the amount of 9 $6,375.927.58, deemed satisfied by the criminal sentencing order entered on May 15, 2019, in 10 United States v. James Catledge, et al., case no. 3:12-cr-00678 (N.D. Cal.), which orders 11 Catledge to pay restitution in the amount of $32,737,143.65.. 12 IT IS FURTHER ORDERED that Catledge is not liable for prejudgment interest. 13 The clerk shall enter final judgment against Catledge accordingly. 14 DATED July 2, 2020. 15 16 __________________________________________ UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 James C. Mahan U.S. District Judge -6-
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
