Opinion
No. 05-cv-5231 (RJS)
07-14-2017
SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. AMERINDO INVESTMENT ADVISORS INC., et al., Defendants.
OPINION & ORDER
RICHARD J. SULLIVAN, District Judge:
Now before the Court are: (1) the motion of the Court-appointed Receiver Ian J. Gazes (the "Receiver") for an order directing a fourth interim distribution to the approximately 40 entities and individuals who invested with Defendants and are authorized to recover from the Receiver (the "Allowed Investors") (Doc. No. 640), and (2) a request by Defendants to vacate the prior judgments in this case in light of the Supreme Court's recent decision in Kokesh v. SEC, 137 S. Ct. 1635 (2017). (Doc. No. 665). For the reasons set forth below, the Court directs the Receiver to distribute an inflation adjustment to the Allowed Investors totaling $13,849,639.27 (the "Inflation Adjustment Distribution") in the amounts set forth in the attachment to this Order. The Court also denies Defendants' request for vacatur under Rule 60(b).
I. BACKGROUND
The Court assumes the parties' familiarity with the facts and procedural history of this case, which are set forth in numerous prior orders (see, e.g., Doc. Nos. 272, 348, 432, 510, 618), as well as the Second Circuit's opinion affirming the final judgments, SEC v. Amerindo Inv. Advs., 639 F. App'x 752 (2d Cir.), cert. denied, 136 S. Ct. 2429 (2016). Accordingly, the Court will provide only background necessary to decide the instant motion.
On October 17, 2012, the Court appointed the Receiver to investigate and determine the value of investor assets held by Defendants and to establish a claims and interim distribution process for investors victimized by Defendants' scheme to defraud. (Doc. Nos. 267, 291.) The Court has previously fixed the Allowed Investors' claims and approved three interim distributions in orders dated May 6, 2014, December 31, 2014, and May 20, 2016, which collectively totaled $54,404,467.83. (Doc. Nos. 432, 510, 618.) These first three distributions reflected the payment of principal only, with no adjustment for inflation, interest, or appreciation, and employed a payment method based on the Allowed Investors' net contributions (the "NCA Method") whereby (1) claims for funds invested in Defendants' Guaranteed Fixed Rate Deposit Accounts ("GFRDA") were assessed at the amount set forth in the last account statement minus subsequent distributions, and (2) claims for funds invested in the Amerindo Technology Growth Fund ("ATGF") were assessed at the amount of the initial investment minus subsequent distributions, or, if the initial investment amount could not be determined, at the amount set forth in the last available account statement amount minus subsequent distributions. (Doc. No. 618 at 2.)
Due to the Receiver's commendable efforts, all Allowed Investors have recovered their principal claim amounts before interest, appreciation, or inflation, and as of September 30, 2016, the Receiver held an additional $24,387,214 in assets. (Doc. No. 640 at 3-4.) On January 30, 2017, the Receiver proposed distributing $20 million of these assets while maintaining a reserve of approximately $4 million in order to pursue outstanding Receivership Assets. (Id. at 5.) Specifically, the Receiver proposed distributing to each Allowed Investor a portion of the $20 million based on each investor's pro rata share of the previous three distributions. (Id. at 5; see also Doc. No. 641-1 at 2.) The Receiver also attached a series of alternative proposals for the Court's consideration, including an inflation adjustment that the Receiver at that time calculated would result in a distribution of $19.975 million. (Doc. No. 641-1 at 8.)
The Court thereafter received objections and alternative proposals from: (1) claimants Paul Marcus, the Deane J. Marcus Trust, the Steven E. Marcus Trust, the Cheryl Marcus-Podhaizer Trust, and the Eve S. Marcus Children's Trust (the "Marcus Claimants") on February 13, 2017 (Doc. No. 645), and (2) claimants Lisa and Debra Mayer (the "Mayer Claimants") on February 27, 2017 (Doc. No. 651). On February 27, 2017, the Court also received objections from Defendants. (Doc. No. 652.)
On February 28, 2017, the Securities and Exchange Commission ("SEC") filed a partial objection to the Receiver's proposal. Specifically, the SEC asserted that the Receiver should be authorized "to make the Fourth Interim Distribution using a consistent inflation adjustment or interest component applied to each allowed claim." (Doc. No. 655.) The SEC distinguished between authorization of a pro rata distribution of profits over the principal amount of the victims' investments, on the one hand, and the payment of an inflation adjustment or interest component on the Allowed Investors' principal, on the other. (See id. at 655 at 2 & n.2 (emphasis added).) The SEC opined that "payment of an inflation adjustment or an interest component on the [A]llowed [I]nvestor claims is consistent with existing law," while it is "unclear whether profits on a defendant's ill-gotten gain . . . can be paid to harmed investors." (Id. (citing CFTC v. Walsh, 712 F.3d 735, 755 (2d Cir. 2013) and SEC v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978).) Therefore, the SEC requested that the Court authorize payment of "a consistent inflation adjustment or interest component to all claimants" rather than "determine how to allocate profits, if any, at this time." (Id. at 4.)
On April 14, 2017, the Receiver submitted a revised proposal (the "Federal Underpayment Rate Proposal") in which he agreed with the SEC's recommendation and requested authorization to pay an interest adjustment on the Allowed Investors' principal calculated at the federal underpayment rate established under Section 6621(a)(2) of the Internal Revenue Code (the "Federal Underpayment Rate"). (Doc. No. 663.) The Receiver estimated that, pursuant to the Federal Underpayment Rate, the Allowed Investors would be entitled to approximately $34 million, and he requested authorization to distribute $20 million of the remaining $24 million in Receivership Assets as a partial payment on that interest with the balance of approximately $14 million to be paid to the Allowed Investors at a future date, if and when it was recovered by the Receiver.
Since that time, the Receiver has, at the Court's direction, calculated an inflation adjustment for each investor based on the Consumer Price Index ("CPI") published by the Bureau of Labor Statistics. In contrast to the inflation adjustment set forth in the Receiver's January 30, 2017 proposal, which contemplated a distribution of $19.975 million (Doc. No. 640-1 at 8), the Inflation Adjustment Distribution attached to this Order properly adjusts for the previous payments of principal received by the Allowed Investors in the first three interim distributions (see Doc. Nos. 432, 510, 618) and totals nearly $14 million.
II. FOURTH INTERIM DISTRIBUTION
A. Approval of the Inflation Adjustment Distribution
"[A]s part of their broad power to remedy violations of federal securities laws," "district courts may appoint receivers." SEC v. Byers, 609 F.3d 87, 92 (2d Cir. 2010). "[A] federal receiver is appointed, under the district court's broad equitable discretion, 'to restore to . . . defrauded [investors]'" funds that were "'fraudulently diverted from . . . their custody and control.'" SEC v. Malek, 397 F. App'x 711, 713 (2d Cir. 2010) (quoting SEC v. Shiv, 379 F. Supp. 2d 609, 618 (S.D.N.Y. 2005)); see also Walsh, 712 F.3d at 749 (discussing district court's "'equitable authority'" to approve "a receiver's plan for compensation of victims of a fraudulent scheme" (citation omitted)). "District courts have discretion to approve a receiver's proposed distribution plan as long as the plan is 'fair and reasonable.'" SEC v. Amerindo Inv. Advs., No. 05-cv-5231 (RJS), 2014 WL 2112032, at *14 (S.D.N.Y. May 6, 2014), aff'd, 639 F. App'x 752 (2d Cir. 2016) (quoting SEC v. Byers, 637 F. Supp. 2d 166, 174 (S.D.N.Y. 2009), aff'd sub nom. SEC v. Orgel, 407 F. App'x 504 (2d Cir. 2010) and Malek, 397 F. App'x at 711). "In making[] its decision, a court may defer to the receiver's choices for the plan's details and should give substantial weight to the SEC's views regarding a plan's merits." Id. at *14; accord Byers, 637 F. Supp. 2d at 175 (citing Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 34 n. 6 (2d Cir. 2005), vacated on other grounds, 547 U.S. 71 (2006)).
The Court finds that the Inflation Adjustment Distribution is fair and reasonable. It is elementary economics "that inflation diminishes the real value of money over time." United States v. Root, 585 F.3d 145, 154 n.6 (3d Cir. 2009); Procter & Gamble Distrib. Co. v. Sherman, 2 F.2d 165, 166 (S.D.N.Y. 1924) (L. Hand, J.) ("[I]n modern financial communities a dollar [today] is worth more than a dollar next year, and to ignore the interval as immaterial is to contradict well-settled beliefs about value. The present use of my money is itself a thing of value and, if I get no compensation for its loss, my remedy does not altogether right my wrong." (emphasis added)). Furthermore, the Court finds that the Receiver's decision to use the CPI to calculate inflation is appropriate. As the Second Circuit has recognized, the CPI is "perhaps the leading indicator of inflation." Doca v. Marina Mercante Nicaraguense, S.A., 634 F.2d 30, 36 (2d Cir. 1980); see also, e.g., Sprinkle v. Colvin, 777 F.3d 421, 428 (7th Cir. 2015) (instructing courts to "generally award the inflation-adjusted rate according to the CPI"); Lair v. Bullock, 697 F.3d 1200, 1213 (9th Cir. 2012) (noting that the CPI is "a well-recognized mechanism for adjusting for inflation"); Harris v. Sullivan, 968 F.2d 263, 265 (2d Cir. 1992) (noting that changes in "the cost of living customarily" are "measured" using the "Consumer Price Index").
The Court also finds that the Inflation Adjustment Distribution is consistent with the remedial goals of the equity receivership. Specifically, the Inflation Adjustment Distribution will compensate the Allowed Investors for the diminished value of their principal - funds that, as the Court has previously underscored, "rightfully belong to" the Allowed Investors but were denied for over a decade. Amerindo, 2014 WL 2112032, at *16 (citing United States v. Benitez, 779 F.2d 135, 141 (2d Cir. 1985) (Van Graafeiland, J., concurring) and Stuhler v. State, 485 N.Y.S.2d 957, 958 (N.Y. Sup. Ct. 1985), aff'd, 493 N.Y.S.2d 70 (1st Dep't 1985)). In fact, the Second Circuit has, at least implicitly, endorsed application of an inflation adjustment where, as here, an equity receiver recovers sufficient funds to provide all investors with their net investment amounts. After affirming a district court's interim distribution plan under an equity receivership, the Second Circuit in Walsh instructed that: "[i]n the event that the Receiver does recover sufficient funds to provide all of the fraud victims with more than their respective net investments, the district court will be free to consider whether to approve an inflation adjustment if the Receiver proposes one," or, in the alternative, "to consider whether to require such an adjustment if it is not proposed." Walsh, 712 F.3d at 755 (emphasis added)). Furthermore, the fact that the SEC supports an inflation adjustment (see Doc. No. 655) lends credence to the Court's conclusion that it is "fair and reasonable." Byers, 637 F. Supp. 2d at 175.
It is true that the Second Circuit has ruled, in the context of a liquidation under the Securities Investor Protection Act ("SIPA"), 15 U.S.C. § 78aaa, et seq., that customers' claims "cannot be adjusted to reflect" either "inflation" or "interest." In re Bernard L. Madoff Inv. Sec. LLC, 779 F.3d 74, 81, 83 (2d Cir. 2015). But even though that case also involved a distribution to defrauded investors, it is distinguishable. Under a SIPA liquidation, the customers of an insolvent broker-dealer "'share ratably in'" a "fund of 'customer property'" overseen by a trustee, who distributes from the fund "'on the basis and to the extent of [the investors'] respective net equities.'" Id. at 77 (emphasis added) (quoting 15 U.S.C. § 78fff-2(c)(1)(B)). The Second Circuit underscored that SIPA's "definition of net equity makes no mention of inflation, whereas other, albeit unrelated, portions of SIPA do." Id. at 79 (citing 15 U.S.C. 78lll(11)). Reviewing the various provisions of SIPA as a whole, the Second Circuit thus found that an "inflation adjustment goes beyond the scope of SIPA's intended protections and is inconsistent with SIPA's statutory framework," which was developed "to remedy broker-dealer insolvencies - not necessarily broker-dealer fraud." Id. In other words, "the purpose of determining net equity under SIPA is to facilitate the proportional distribution of customer property actually held by the broker, not to restore to customers the value of the property that they originally invested." Id. at 81. The Second Circuit also rejected the investors' argument that "the claims of Madoff's earlier investors [would be] unfairly undervalued" absent an inflation adjustment, reasoning that because "'SIPA was not designed to provide full protection to all victims of a brokerage collapse, . . . arguments based solely on the equities are not, standing alone, persuasive.'" Id. at 79, 81 (quoting SEC v. Packer, Wilbur & Co., 498 F.2d 978, 983 (2d Cir. 1974)). The court further observed that an inflation or interest adjustment would in any event be inequitable under the facts of that case, since "it [was] doubtful that the full amount of customer property [would] be recovered," and thus, "each dollar allocated to earlier investors in recognition of inflation [would] reduce[] the amount of principal recovered by later investors." Id. at 81 (footnote omitted).
Unlike Madoff, however, this case does not involve a liquidation under SIPA. Rather, the Court has appointed the Receiver pursuant to different statutory provisions - namely, Section 22(a) of the Securities Act and Section 27 of the Exchange Act - which "confer general equity powers upon the district courts" to remedy securities law violations. Smith v. SEC, 653 F.3d 121, 127 (2d Cir. 2011) (quoting SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1103 (2d Cir. 1972) and citing 15 U.S.C. §§ 77v(a), 78aa); (see also Doc. No. 272 at 15-16 (citing Eberhard v. Marcu, 530 F.3d 122, 131 (2d Cir. 2008)); SEC v. Universal Express, Inc., No. 04-cv-2322 (GEL), 2007 WL 2469452, at *3 (S.D.N.Y. Aug. 31, 2007) (discussing district court's authority under Section 22(a) of the Securities Act and Section 27 of the Exchange Act to appoint receiver). And where, as here, "the equity jurisdiction of the district court has been properly invoked by a showing of a securities law violation, the court possesses the necessary power to fashion an appropriate remedy." In re Bayou Grp., LLC, 564 F.3d 541, 548 (2d Cir. 2009) (quoting Manor Nursing Ctrs., Inc., 458 F.2d at 1103). Thus, as noted above, this Court has very broad discretion "to approve any plan" proposed by the Receiver "provided it is 'fair and reasonable.'" Byers, 637 F. Supp. 2d at 174 (quoting SEC v. Wang, 944 F.2d 80, 81 (2d Cir. 1991)); SEC v. Enter. Tr. Co., No. 08-cv-1260, 2008 WL 4534154, at *3 (N.D. Ill. Oct. 7, 2008), aff'd, 559 F.3d 649 (7th Cir. 2009) ("There are no hard rules governing a district court's decisions in matters like these. The standard is whether a distribution is equitable and fair in the eyes of a reasonable judge."). Accordingly, in contrast to the SIPA trustee in Madoff, the Receiver in this case is not required to make distributions that comport with SIPA's narrow definition of the term "net equity," 15 U.S.C. § 78lll(11), so long as the distribution at issue would be "fair and reasonable," Wang, 944 F.2d at 81.
Furthermore, the equities in this case strongly favor an inflation adjustment. As noted earlier, a principal goal of this receivership is "to restore" to the Allowed Investors "that which was fraudulently diverted from . . . their custody and control." Malek, 397 F. App'x at 713; SEC v. Drexel Burnham Lambert, Inc., 956 F. Supp. 503, 507 (S.D.N.Y.), aff'd sub nom. SEC v. Fischbach Corp., 133 F.3d 170 (2d Cir. 1997) (recognizing that a goal of an equity receivership is "to return the money to the victims of the violation"). By awarding an inflation adjustment, the Receiver is restoring to the Allowed Investors the value of funds that Defendants fraudulently induced them to convey. Furthermore, there is no concern here, as there was in Madoff, that a "dollar allocated to earlier investors in recognition of inflation reduces the amount of principal recovered by later investors," Madoff, 779 F.3d at 81, since, due to the remarkable efforts of the Receiver, the Allowed Investors have already recovered the nominal amount of their principal in the previous three interim distributions. Therefore, notwithstanding the Second Circuit's disapproval of an inflation- or interest-based adjustment in the SIPA context, the Court concludes that an inflation adjustment is consistent with the law governing equity receiverships and "fair and reasonable" under the facts of this case. The Court also finds that the Inflation Adjustment Distribution described above based on the CPI, which is "perhaps the leading indicator of inflation," Doca, 634 F.2d at 36, is the most appropriate method of adjusting the Allowed Investors' losses.
B. Rejection of the Federal Underpayment Distribution
The Court next addresses the alternative Federal Underpayment Distribution, which the SEC has previously endorsed. (Doc. No. 663 at 4.) Although courts often defer to the SEC's views regarding a proposed distribution plan, see, e.g., Byers, 637 F. Supp. 2d at 175, the Court declines to do so here. The Federal Underpayment Rate is "the rate taxpayers are charged for late or missing payments to the [Internal Revenue Service]," Roth v. Jennings, No. 03-cv-7760 (DAB), 2009 WL 1440670, at *7 (S.D.N.Y. May 21, 2009), and represents the "average annual short-term interest rate, plus [an] additional three points," Flanagan v. N. Star Concrete Const., Inc., No. 13-cv-2300 (JS) (AKT), 2014 WL 4954615, at *9 (E.D.N.Y. Oct. 2, 2014) (emphasis added) (citing 26 U.S.C. §§ 6621(a)(2), (b)(1)). The SEC ordinarily obtains this interest rate for prejudgment interest on awards of disgorgement. 17 C.F.R. § 201.600(b). Such a rate is appropriate in that context, where "the primary purpose" of a prejudgment interest award is "to deprive the wrongdoer of the benefit of holding the illicit gains over time by reasonably approximating the cost of borrowing such gain from the government," SEC v. Contorinis, 743 F.3d 296, 308 (2d Cir. 2014), "thereby effectuating the deterrence objectives of [the securities] laws," SEC v. Razmilovic, 738 F.3d 14, 36 (2d Cir. 2013), as amended (Nov. 26, 2013) (quoting SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474 (2d Cir. 1996); see also SEC v. Cavanagh, 445 F.3d 105, 117 (2d Cir. 2006) (noting that disgorgement's primary purpose is "not . . . to compensate victims" - rather, disgorgement is "used by the SEC and courts to prevent wrongdoers from unjustly enriching themselves through violations, which has the effect of deterring subsequent fraud").
In contrast, as noted above, the goal of this equity receivership is to compensate the Allowed Investors. Malek, 397 F. App'x at 713; Drexel Burnham Lambert, Inc., 956 F. Supp. at 507. A distribution based on the Federal Underpayment Rate - an interest rate that is dramatically higher than the ordinary benchmark treasury rate and the interest rates ordinarily available to private citizens in commercial transactions - would provide a windfall to the Allowed Investors based on the largely punitive and deterrent purposes of that rate. Indeed, as the Supreme Court recently instructed in a unanimous decision, a "pecuniary sanction" that is designed to do more than simply "compensate[e] a victim for his loss" and is "sought for the purpose of punishment, and to deter others from offending in like manner" "operates as a penalty." Kokesh, 137 S. Ct. at 1642 (citation and internal quotation marks omitted). Accordingly, the Court concludes that an award based on the Federal Underpayment Rate would be impermissibly punitive and rejects the Federal Underpayment Rate Proposal.
Furthermore, the Court is concerned that authorization of the Federal Underpayment Rate Proposal would preclude Defendants' creditors, to whom it appears Defendants still owe millions of dollars, from any recovery. See Byers, 637 F. Supp. 2d at 176 (noting that in crafting a distribution in an equitable receivership, "it is important to remember that each investor's recovery comes at the expense of the others"). Indeed, the Federal Underpayment Rate Proposal contemplates a distribution of approximately $34 million - $20 million at this stage and approximately $14 million in the future, if and when it is collected - which exceeds the Receiver's current holdings by about $10 million. Although the Receiver has been extraordinarily skillful in his efforts to recover assets for the Allowed Investors' benefit, it is far from guaranteed that he will recover anything more, which would leave other creditors without any remedies. Accordingly, the Court declines to adopt the Federal Underpayment Rate Proposal.
C. Rejection of the Marcus Claimants' Alternative Proposal
The Court next turns to the Marcus Claimants' alternative proposal. (Doc. No. 645.) The Marcus Claimants note that they and other ATGF investors had bargained for both higher risks and higher rewards as investors in an "equity mutual fund," whereas GFRDA investors were guaranteed "a fixed rate of interest." (Id. at 2.) The Marcus Claimants therefore argue that "[a]ny increase in the value of the securities in which the [D]efendants invested should inure solely to the benefit of the ATGF Investors." (Id. at 2, 4, 10.) Accordingly, the Marcus Claimants ask the Court to direct the Receiver to: (1) pay the GFRDA investors an interest adjustment reflecting the one-year treasury interest rate, a rate that "is often used as the risk-free rate for U.S.-based investors" (Doc. No. 645 at 14), for a total of approximately $5.7 million, and (2) convey the remainder of this distribution, totaling approximately $14.3 million, to ATGF investors, to reflect the ATGF investments' "appreciation" in value. (Id. at 23 (arguing that "the distribution method urged by the Marcus Claimants would give the ATGF Investors the benefit of . . . overall market appreciation, and would restore them to the position for which they bargained . . . ."). Relatedly, the Marcus Claimants argue that certain additional assets that have yet to be recovered by the Receiver - including the Amerindo Advisors (UK) Ltd. Retirement Benefits Scheme (the "Retirement Benefits Scheme"), which the Marcus Claimants assert is worth approximately $12 million - should "be made available for distribution to the ATGF Claimants," since "it appears that securities held in the 'benefits scheme account' were in fact purchased with ATGF Investors' money," and "[a]llowing the [D]efendants to retain these assets would permit them to benefit from their own fraud." (Id. at 19-20, 22.)
To be sure, "GFRDA investors were promised and expected a guaranteed, fixed return for a set period of time, while ATGF investors were promised and expected a riskier investment that would last indefinitely and from which they would benefit according to their number of shares." Amerindo, 2014 WL 2112032, at *15. But the Marcus Claimants' proposal rests on a flawed premise - namely, that they are entitled to recover the "profits" or "appreciation" in the value of the receivership assets, which they presume to be synonymous with the ATGF investments. (Doc. No. 645 at 7.) In fact, the Marcus Claimants' presumption that the ATGF investors are the rightful owners of the Receivership Assets is simply inaccurate, since the stocks that comprise the Receiver's assets were purchased with the commingled funds of all investors - ATGF and GFRDA alike - making it impossible to trace the remaining assets to the ATGF investors alone. Accordingly, the Marcus Claimants' proposal would give a windfall to ATGF investors where there is no basis for distinguishing them from the other defrauded investors, other than their own subjective expectations.
Remarkably, the Marcus Claimants rely on the Second Circuit's decision in In re New Times Securities Services for the proposition that "defrauded [i]nvestors are entitled to . . . profits" in an equity receivership "where [i]nvestors' money was actually used to purchase and sell securities." (Doc. No. 645 at 7 (citing 371 F.3d at 74, 87 (2d Cir. 2004)).) But that case says nothing of the sort. In fact, that case, which was a SIPA liquidation, involved "a classic 'Ponzi scheme'" in which the defendant merely "misappropriated the money" and duped numerous victims into buying securities that "never existed." 371 F.3d at 72 & n.2 (emphasis added). Thus, that case involved no investor profits whatsoever and cannot possibly be construed as support for the ATGF Investors' entitlement to "profits" in this distribution. The Marcus Claimants' reliance on the Second Circuit's decision in Walsh for the proposition that "once 100% of the invested amounts have been recovered, it is appropriate for a distribution plan to differentiate between categories of investors" by awarding profits to those who made riskier investments is similarly unavailing. Doc. No. 645 at 8 (citing Walsh, 712 F.3d at 744).) In fact, as noted above, Walsh approved of precisely the sort of "inflation adjustment" that the Court is ordering here in the event that investors recovered their "respective net investments." See Walsh, 712 F.3d at 755.
The Marcus Claimants' lack of authority for the proposition that "profits" may be returned to defrauded investors in an SEC-initiated receivership is hardly surprising. Historically, the "primary purpose" of such a receivership has been "to conserve the existing estate" so as "to preserve the status quo," "prevent the dissipation of [the] defendant's assets pending further action by the court," and "obtain an accurate picture of what transpired" in a fraud. Eberhard, 530 F.3d at 131 (citations omitted). It is true that "[t]he Second Circuit" has "extended the Receiver's equity jurisdiction to trace and repatriate funds from many discrete accounts . . . back to the rightful owners, ratably in proportion to their losses." Shiv, 379 F. Supp. 2d at 617 (citing Credit Bancorp Ltd., 290 F.3d at 88-90); accord Walsh, 712 F.3d at 749. But as the Second Circuit has also underscored, "the power of a securities receiver is not without limits." Eberhard, 530 F.3d at 132. As relevant here, the Second Circuit has "expressed strong reservations as to the propriety of allowing a receiver to liquidate [an estate]." Id. (quoting Lankenau v. Coggeshall & Hicks, 350 F.2d 61, 63 (2d Cir. 1965). And "because receivership should not be used as an alternative to bankruptcy," the Second Circuit has "disapproved of district courts using receivership as a means to process claim forms and set priorities among various classes of creditors." Eberhard, 530 F.3d at 132 (quoting SEC v. Am. Bd. of Trade, Inc., 830 F.2d 431, 437-38 (2d Cir. 1987)).
Though their brief does not say so expressly, the Marcus Claimants are effectively asking the Court to impose a constructive trust in the ATGF investors' favor with respect to most of the remaining assets in the Receiver's accounts and the yet-to-be-recovered Retirement Benefits Scheme. (Doc. No. 645 at 22 (arguing that the Court should exercise its equitable authority to prevent Defendants from "benefit[ing] from their own fraud")); see also In re First Cent. Fin. Corp., 377 F.3d 209, 212 (2d Cir. 2004) (explaining that "the purpose of the constructive trust is prevention of unjust enrichment" by a fiduciary who has wrongfully obtained property (citation omitted)). But significantly, the Second Circuit has disapproved of the imposition of a constructive trust in the context of a bankruptcy. See In re Flanagan, 503 F.3d 171, 182 (2d Cir. 2007) (explaining that "bankruptcy courts have been reluctant, absent a compelling reason, to impose a constructive trust on the property in the estate," since "the effect of a constructive trust in bankruptcy is to take the property out of the debtor's estate and to place the constructive trust claimant ahead of other creditors with respect to the trust res"). The Second Circuit has also strictly required the claimant to a constructive trust to "trace his own property into a product in the hands of the wrongdoer." United States v. Benitez, 779 F.2d 135, 140 (2d Cir. 1985). Clearly, the Marcus Claimants can do that - but so can the GFRDA investors, and the Marcus Claimants offer no compelling reason for why they should be treated more favorably than the other investors defrauded by Defendants.
Here, the Receiver has been extraordinarily successful in "repatriat[ing] funds from" Defendants' accounts to the Allowed Investors, who have now recovered their net investments and an inflation adjustment. Shiv, 379 F. Supp. 2d at 617. But given the limited assets remaining in the Receiver's accounts, it is far from clear, as a matter of bankruptcy law or equity, that the ATGF investors - including the Marcus Claimants - are entitled to priority over GFRDA investors or the numerous other creditors who are still owed funds by Defendants, including the SEC, which has money judgments against all Defendants (Doc. Nos. 433, 434, 435); the victims awarded restitution in the criminal case (No. 05-cr-621 (RJS), Doc. No. 682, 683, 685, 686); and a variety of additional creditors identified by the Receiver, such as Traveler's Bond and Finance Products, Latchezar Christov, J.P. Morgan Securities LLC, and Peter Lusk.
Thus, the Court concludes that the Marcus Claimants' request for an award of "profits" or "appreciation" on their investments is unjustified at this time.
D. Rejection of the Mayer Claimants' Proposal
For their part, the Mayer Claimants, who invested primarily in GFRDA, urge the Court to deny any recovery to the ATGF investors because they "knowingly chose risky, unguaranteed investments." (Doc. No. 561 at 20.) The Mayer Claimants also ask that they be given priority over other Allowed Investors because they: (1) were awarded restitution in the related criminal case, United States v. Vilar, 05 cr-621 (RJS); (2) obtained judgments in New York State Supreme Court against certain Defendants; and (3) have "played a critical role in bringing the Defendants' fraudulent actions to light . . . ." (Doc. No. 651 at 1-2; see also Doc. No. 651-2 at 1 n.3.)
The Court rejects the Mayer Claimants' proposal for several reasons. First, as the Court has previously underscored, "although the ATGF investors bargained for risk, they did not bargain for the risk of fraud." Amerindo, 2014 WL 2112032, at *15. Since "Defendants stole from ATGF and GFRDA investors indiscriminately," the Court finds that "there is simply no reason why only ATGF investors should bear the costs of that theft" and why ATGF investors should not be entitled to recover an inflation adjustment reflecting the diminished value of the net investments. Id. Furthermore, the help provided by the Mayers to investigatory authorities, though commendable, is not enough, standing alone, to award the Mayers an outsized recovery in this distribution; in fact, several of the Allowed Investors hired lawyers and paid out-of-pocket expenses in connection with this long-running case. And while it is true that the Mayers were awarded a separate judgment against certain Defendants in state court, a receiver is not required to favor one victim over others simply because that victim raced to the courthouse and obtained a judgment" - rather, the "court's role is to do equity." Amerindo, 2014 WL 2112032, at *16. Finally, as noted previously, it is not this Court's job, at this time, "to process claim forms and set priorities among various classes of creditors." Eberhard, 530 F.3d at 131. Rather, the Court's purpose in this distribution is "to restore" to the Allowed Investors "that which was fraudulently diverted from . . . their custody and control." Malek, 397 F. App'x at 713. Thus, for the reasons already explained above, the Court concludes that the Inflation Adjustment Distribution is the most fair and reasonable way of accomplishing that goal.
III. DEFENDANTS' REQUEST FOR VACATUR
Defendants "suggest" in their June 23, 2017 letter that vacatur of the disgorgement judgments obtained by the SEC is appropriate under Rule 60(b) in light of Kokesh because the Court did not apply the five-year statute of limitations. (Doc. No. 665 at 1; see also Doc. Nos. 433, 434, 435.) In Kokesh, which was decided on June 5, 2017, the Supreme Court unanimously concluded that "disgorgement constitutes a penalty within the meaning of" the statute of limitations applicable to SEC enforcement actions. Kokesh, 137 S. Ct. at 1643; see also 28 U.S.C. § 2462 (requiring "an action . . . for the enforcement of any civil fine, penalty, or forfeiture" to commence within five years from accrual). For the reasons set forth below, Defendants' request for vacatur is meritless.
Rule 60(b) allows a court to "relieve a party or its legal representative from a final judgment, order, or proceeding" for several reasons, including:
(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party; (4) the judgment is void; (5) the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or (6) any other reason that justifies relief."A motion for relief from judgment is generally not favored and is properly granted only upon a showing of exceptional circumstances," and "[t]he burden of proof is on the party seeking relief from judgment." United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 391 (2d Cir. 2001).
Defendants' vacatur request clearly fails under any provision of Rule 60(b). Requests for vacatur under Rule 60(b)(1), 60(b)(2), and 60(b)(3) are subject to an "absolute" one-year time bar. Warren v. Garvin, 219 F.3d 111, 114 (2d Cir. 2000). Therefore, since it is well more than a year after May 16, 2014 - the date the judgments were issued against Defendants (Doc. Nos. 433, 434, 435) - any motion under these provisions clearly would be untimely. Furthermore, the fact that Defendants unsuccessfully appealed the judgments in this case to the Second Circuit and to the Supreme Court does not toll the one-year deadline, see King v. First Am. Investigations, Inc., 287 F.3d 91, 94 (2d Cir. 2002) (per curiam), and even if tolling did apply, Defendants submitted their letter more than a year after the Supreme Court's June 6, 2016 denial of a writ of certiorari.
To be sure, vacatur requests under Rules 60(b)(4), 60(b)(5), and 60(b)(6) are not subject to the one-year time bar. But because Defendants cannot possibly argue that this Court "lacked jurisdiction" or "acted in a manner inconsistent with due process of law," it is clear that the judgment is not "void" and that relief under Rule 60(b)(4) is unwarranted. City of New York v. Mickalis Pawn Shop, 645 F.3d 114, 138 (2d Cir. 2011). With respect to Rule 60(b)(5), that provision may warrant vacatur when "applying [a judgment] prospectively is no longer equitable," Fed. R. Civ. P. 60(b)(5), such as when "'a significant change either in factual conditions or in law' . . . renders continued enforcement 'detrimental to the public interest.'" Horne v. Flores, 557 U.S. 433, 447 (2009) (quoting Rufo v. Inmates of Suffolk Cty. Jail, 502 U.S. 367, 384 (1992)). But Defendants have not articulated any basis for the Court to find that Kokesh renders continued enforcement of the disgorgement judgments inequitable or detrimental to the public interest, notwithstanding the fact that "[t]he party seeking relief" under Rule 60(b)(5) "bears the burden of establishing that changed circumstances warrant relief." Id. And even though Rule 60(b)(5) is properly invoked if a judgment is "based on an earlier judgment that has been reversed or vacated," that provision "does not provide a basis for relief" in cases where the judgment at issue "relie[d] on an earlier judgment merely as legal precedent" that has been "subsequently set aside or overturned." Moses v. United States, No. 90-cr-863 (RPP), 2005 WL 292976, at *3 (S.D.N.Y. Feb. 8, 2005) (quoting 12 Moore's Federal Practice § 60.46[2] at 60-154.1 (3d ed. 1997) (emphasis in original)); accord In re Racing Servs., Inc., 571 F.3d 729, 732 (8th Cir. 2009). Thus, the fact that the Court relied on precedents that might subsequently have been abrogated by the Supreme Court in Kokesh is of no moment. With respect to Rule 60(b)(6), that provision "applies only 'when the asserted grounds for relief are not recognized in clauses (1)-(5) of the Rule' and 'there are extraordinary circumstances justifying relief.'" Tapper v. Hearn, 833 F.3d 166, 172 (2d Cir. 2016) (quoting Nemaizer v. Baker, 793 F.2d 58, 63 (2d Cir. 1986)). But "[a]s a general matter, a mere change in decisional law does not constitute an 'extraordinary circumstance' for the purposes of Rule 60(b)(6)." Id. (quoting Marrero Pichardo v. Ashcroft, 374 F.3d 46, 56 (2d Cir. 2004)); see also Rinieri v. News Syndicate Co., 385 F.2d 818, 822 (2d Cir. 1967) (noting that the scope of Rule 60(b)(6) is "extremely meagre"). Accordingly, the Court concludes that Defendants have not articulated a basis for vacatur of the Court's judgments.
In any event, Defendants' Rule 60(b) motion must also fail because Defendants waived the statute of limitations defense in this action. The law is clear that "[n]ew arguments based on hindsight regarding how a movant would have preferred to have argued its case do not provide grounds for Rule 60(b) relief." Westport Ins. Corp. v. Goldberger & Dubin, P.C., 255 F. App'x 593, 595 (2d Cir. 2007) (citing Nemaizer, 793 F.2d at 62). As the Second Circuit noted in affirming the final judgments, "Vilar and Tanaka waived their statute of limitations defense by not raising it in their motion to dismiss the amended complaint," and the other Defendants "abandoned" "the statute of limitations defense . . . by their failure to appear and assert that defense." Amerindo, 639 F. App'x at 754. Accordingly, Defendants' arguments under Rule 60(b), in addition to being untimely and meritless, have been waived.
Relatedly, Defendants also argue that an inflation or interest distribution would be "punitive" under the reasoning of Kokesh. (Doc. No. 652 at 2.) But Defendants appear to conflate disgorgement with equitable distribution, even though they are different remedies. As noted above, disgorgement is meant to deprive a defendant from unjust enrichment and to deter violations of the securities laws. See Cavanagh, 445 F.3d at 117. However, the Inflation Adjustment Distribution in this case clearly serves a compensatory purpose, since it compensates the Allowed Investors for the diminished value of their principal resulting from inflation. See Walsh, 712 F.3d at 755; Malek, 397 F. App'x at 713; see also Kokesh, 137 S. Ct. at 1642 (instructing that a "pecuniary sanction operates as a penalty only if it is sought 'for the purpose of punishment, and to deter others from offending in like manner' - as opposed to compensating a victim for his loss" (citation omitted)). And while Defendants repeatedly insist that they are entitled to the Receiver's remaining assets (Doc. No. 652), this argument is, as previously noted by the Court, "facially absurd" (Doc. No. 618 at 7), since: (1) the Allowed Investors have not yet recovered an inflation adjustment, and (2) Defendants are still indebted to numerous additional creditors (see Doc. No. 655 at 2 n.3 (SEC noting in its response that Defendants "will have no claim to any of the Receivership assets until all claims, including the SEC's substantial penalty claims against each of the entity and individual defendants, are satisfied")). As a result, this argument too must be rejected.
IV. CONCLUSION
In sum, for the reasons set forth above, the Court concludes that it would be "fair and reasonable" to authorize the Inflation Adjustment Distribution. Accordingly, IT IS HEREBY ORDERED that the Receiver shall distribute $13,849,639.27 to investors in the amounts set forth in the attached schedule. IT IS FURTHER ORDERED that Defendants' request for vacatur under Rule 60 is DENIED. The Clerk is respectfully directed to terminate the motion pending at docket number 640. SO ORDERED. Dated: July 14, 2017
New York, New York
/s/_________
RICHARD J. SULLIVAN
UNITED STATES DISTRICT JUDGE
AMERINDO
DRAFT - FOURTH INTERIM DISTRIBUTION Amerindo Investment Advisors Inc. et al.
Detailed Calculations of Proposed Fourth Interim Distributions
Interest Calculated For the Period: May 1, 2005 - January 31, 2017
| ClaimNo. | Claimant | Allowed ClaimAmount | Inflation Interest |
|---|---|---|---|
| 1 | E. Ronald Salvitti, M.D. | $ 6,000,000.00 | $ 1,524,729.30 |
| 2 | John Preetzmann - Aggerholm | $ 234,745.76 | $ 59,653.96 |
| 3 | O.GCI Nominees Limited a/k/a Quilter Cheviot Limited f/k/aQuilter Goodison | $ 95,000.00 | $ 23,881.56 |
| 4 | Lisa Mayer & Debra Mayer c/o Begos Brown & Green LLP | $ 10,759,561.98 | $ 2,733,767.05 |
| 6 | Elizabeth Knope | $ 5,021.00 | $ 1,275.94 |
| 7 | Michael Walsh | $ 247,608.19 | $ 62,922.58 |
| 8 | Surinder Rametra | $ 250,000.00 | $ 63,530.39 |
| 9 | Sheridan Securities | $ 500,000.00 | $ 127,060.77 |
| 10 | James Charles | $ 175,726.14 | $ 44,655.80 |
| 11 | Adriana Sanchez | $ 2,076,274.00 | $ 527,625.97 |
| 12 | Robin Sayko | $ 275,872.99 | $ 70,105.27 |
| 13 | Donald & Marilyn Walsh | $ 225,775.13 | $ 57,374.33 |
| 14 | Frank Harris | $ 47,400.00 | $ 12,045.36 |
| 15 | Charles Kaye | $ 174,988.00 | $ 44,468.22 |
| 16 | Alfred Heitkonig for himself and on behalf of Elna CharlotteOlga a/k/a Elna Heitkoenig and Maaike Maria Hickok | $ 5,259,365.37 | $ 1,336,518.08 |
| 17 | The Winsford Corporation | $ 1,500,000.00 | $ 381,182.32 |
| 18 | Peter Sweetland | $ 41,670.47 | $ 10.589.36 |
| 19 | John W. Sweetland, Sr. | $ 1,874,988.59 | $ 476,475.01 |
| 20 | Timothy Sweetland | $ 191,670.47 | $ 48,707.60 |
| 21 | John W. Sweetland, Jr. | $ 41,670.47 | $ 10,589.36 |
| 22 | Anthony W. Gibbs | $ 1,287,619.98 | $ 327,211.98 |
| 23 | Patricia A. Kabara | $ 135,770.62 | $ 34,502.24 |
| 24 | National Investors Group Holdings Ltd. f/k/a NIG-AmertechLtd. | $ 1,000,000.00 | $ 254,121.55 |
| 25 | Angelica Jordan | $ 3,344,967.13 | $ 850,028.23 |
| 29-a | Paul Marcus | $ 3,025,835.38 | $ 768,929.98 |
| 29-b | The DeaneJ. Marcus Trust | $ 425,776.89 | $ 108,199.08 |
| 29 c | The Steven E. Marcus Trust | $ 425,776.89 | $ 108,199.08 |
| 29-d | The Cheryl Marcus-Podhaizer Trust | $ 516,322.05 | $ 131,208.56 |
| 29-e | The Eve S. Marcus Children's Trust | $ 30,000.00 | $ 7,623.65 |
| 30 | Imagineers Profit Sharing Plan | $ 169,503.13 | $ 43,074.40 |
| 32 | Lily Cates | $ 9,198,189.51 | $ 2,337,458.17 |
| 33 | Robert Cox | $ 85,248.51 | $ 21,663.48 |
| 34 | Graciela Lecube Chavez | $ 48,434.12 | $ 12.17145 |
| 35 | Ana Acevedo | $ 905,319.20 | $ 236,541.87 |
| 36 | Jacqueline A, Gaztambide, Ana R. Acevedo, Annette Acevedo | $ 65,000.00 | $ 16,746,97 |
| 37 | LA Opera | $ 721,240.25 | $ 185,824.44 |
| 38 | Maria Dichov | $ 1,567,528.62 | $ 403,866.98 |
| 39 | Anna Gladkoff | $ 300,000.00 | $ 77,293.70 |
| 40 | David Mainzer | $ - | $ - |
| 41 | Christina Lohmann | $ - | $ - |
| 42 | Jenny Zanzuri | $ 1,174,596.99 | $ 307,815.22 |
| $ 54,404,467.83 | $ 13,849,639.27 |