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US Securities and Exchange Commission v. Guzman

United States District Court, W.D. North Carolina, Charlotte Division

May 18, 2018

US SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
GUSTAVO A. GUZMAN, Defendant.

          ORDER

          Graham C. Mullen, United States District Judge.

         THIS MATTER is before the Court on Plaintiffs Motion for Default Judgment (Doc. No. 10). The Court has reviewed Plaintiffs Motion, together with the Memorandum in Support and supporting materials submitted contemporaneously with the Motion or previously filed with the Court. For the reasons stated herein, the Court will grant Plaintiffs Motion.

         PROCEDURAL BACKGROUND

         On May 24, 2017, Plaintiff filed a Complaint against Defendant. The Complaint alleges that Defendant: (1) violated 15 U.S.C. § 77q(a), using interstate commerce for the purpose of fraud or deceit; (2) violated 15 U.S.C. § 78j(b) and Rule 10b-5 thereunder, using any manipulative or deceptive device or contrivance in connection with the purchase or sale of securities; (3) violated 15 U.S.C. § 8Ob-6(1), (2), using interstate commerce as an investment adviser to employ devices to defraud a client or prospective client, and engaging in transactions which have operated as a fraud or deceit upon clients or prospective clients; and (4) violated 15 U.S.C. § 80b-6(4) and 17 C.F.R. § 275.206(4)-8 thereunder, engaging in fraudulent practices while acting as an investment adviser to a pooled investment vehicle. (Compl., 9-12).

         Plaintiff attempted to serve Defendant at his last known address, the addresses of two extended family members, and a scheduled business engagement. After those attempts were unsuccessful, service was rendered on the person in charge of Defendant's usual mailing address at the UPS Store at 650 N. Rose Dr. #490 in Placentia, California on June 29, 2017. (Doc. No. 3). Defendant's Answer was accordingly due July 20, 2017.

         Defendant did not make an appearance or file a responsive pleading to the Complaint. On August 28, 2017, Plaintiff moved for an entry of default pursuant to Rule 55(a), which the clerk entered on September 20, 2017. Subsequently, on May 7, 2018, Plaintiff moved for a default judgment by the Court pursuant to Rule 55(b)(2).

         STANDARD OF REVIEW

         When a defendant is in default, the well-pleaded factual allegations of the complaint are deemed to be admitted by the defendant, but conclusions of law and the amount of damages are not. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001). A court must thus "determine whether the well-pleaded allegations in [the] complaint support the relief sought." Id. The plaintiff bears the burden of proving that judgment should be granted by way of a motion for default judgment. Silvers, v. Iredell Cty. Dept. of Soc. Servs., No. 5:15-cv-00083, 2016 WL 427953, at *6 (W.D. N.C. Feb. 3, 2016).

         FINDINGS OF FACT AND CONCLUSIONS OF LAW

         The Court finds the following:

1. This Court has jurisdiction over the subject matter of this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
2. This Court has personal jurisdiction over Defendant as Defendant has transacted business in the State of North Carolina and within this judicial District.
3. Venue is proper in this Court pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa, as acts, transactions, practices, and courses of business constituting the violations alleged occurred within the jurisdiction of the United States District Court for the Western District of North Carolina and elsewhere.
4. Defendant has been properly served with the Complaint in this action.
5. Defendant has not defended himself in this action.
6. The Court has properly entered a default against Defendant pursuant to Fed.R.Civ.P. 55(a).
7. Entry of default judgment against Defendant is adequately supported in fact and law by the undenied allegations of the Complaint, the evidence and methodology set forth in the motion, Plaintiffs memorandum in support of the motion, and the supporting materials submitted contemporaneously with the Motion.
8. Injunctive relief is proper in this matter. Upon a "proper showing" the SEC can obtain a permanent injunction against any person who is engaged in any acts or practices that violate the provisions of the securities acts or regulations. See SEC v. Marker, 427 F.Supp.2d 583. 590 (M.D. N.C. 2006). An injunction is appropriate "if the SEC demonstrates a reasonable and substantial likelihood that the defendant, if not enjoined, will violate the securities laws in the future." Id. Here, the SEC has presented evidence showing that Defendant engaged in repeated, serious offenses-defrauding a dozen investors out of more than $2 million over the course of at least five years-with a high degree of scienter. Thus, a permanent injunction is proper relief.
9. Disgorgement is proper in this matter. "It is well settled that a court may order the disgorgement of profits obtained through securities fraud." Id. at 591. Disgorgement is subject to a five-year statute of limitations. Kokesh v. SEC, ___ U.S. ___, 137 S.Ct. 1635, 1644 (2017). The uncontested evidence shows that Defendant retained $253, 820.82 in ill-gotten gains from his fraudulent conduct during the five-year ...

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