Opinion
Civil Action 19-4229-KSM
06-24-2022
SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. DEAN PATRICK MCDERMOTT, et al., Defendants. Exhibit Document Objection Ruling OVERRULED OVERRULED Exhibit Document Objection Ruling OVERRULED OVERRULED OVERRULED OVERRULED RULING RESERVED OVERRULED OVERRULED OVERRULED OVERRULED SUSTAINED SUSTAINED SUSTAINED RULING RESERVED RULING RESERVED RULING RESERVED OVERRULED RULING RESERVED RULING RESERVED SUSTAINED
ORDER
KAREN SPENCER MARSTON, J.
AND NOW, this 24th day of June, 2022, it is hereby ORDERED as follows:
1. Upon consideration of Defendants' Motion to Preclude Evidence on the Timing of Prospectus Delivery (Doc. No. 82) and Plaintiff's Opposition to Defendants' Motion to Preclude Evidence on the Timing of Prospectus Delivery (Doc. No. 99), it is hereby ordered that Defendants' Motion to Preclude Evidence on the Timing of Prospectus Delivery (Doc. No. 82) is DENIED.
2. Upon consideration of Defendants' Motion in Limine to Preclude Plaintiff from Introducing Irrelevant Brokerage Account Documents (Doc. No. 83) and Plaintiff's Opposition to Defendants' Motion in Limine to Preclude Plaintiff from Introducing Irrelevant Brokerage Account Documents (Doc. No. 100), it is hereby ordered that Defendants' Motion in Limine to Preclude Plaintiff from Introducing Irrelevant Brokerage Account Documents (Doc. No. 83) is GRANTED.
3. Upon consideration of Defendants' Motion in Limine to Preclude Evidence Referencing Commission and Judicial Opinions (Doc. No. 84) and Plaintiff's Opposition to Defendants' Motion in Limine to Preclude Evidence Referencing Commission and Judicial Opinions (Doc. No. 102), it is hereby ordered that Defendants' Motion in Limine to Preclude Evidence Referencing Commission and Judicial Opinions (Doc. No. 84) is GRANTED.
4. Upon consideration of Defendants' Motion in Limine to Preclude Plaintiff from Introducing Certain Evidence or Testimony Related to Dean McDermott's Ph.D. from LaSalle University (Doc. No. 85), Plaintiff's Opposition to Defendants' Motion in Limine to Preclude Plaintiff from Introducing Certain Evidence or Testimony Related to Dean McDermott's Ph.D. from LaSalle University (Doc. No. 101), and Plaintiff's Supplemental Submission in Further Support of Its Opposition to Defendants' Motion in Limine to Preclude Plaintiff from Introducing Certain Evidence or Testimony Related to Dean McDermott's Ph.D. from LaSalle University (Doc. No. 107), it is hereby ordered that Defendants' Motion in Limine to Preclude Plaintiff from Introducing Certain Evidence or Testimony Related to Dean McDermott's Ph.D. from LaSalle University (Doc. No. 85) is GRANTED.
5. Upon consideration of Defendants' Motion to Preclude Evidence and References Related to Settlement Orders (Doc. No. 86) and Plaintiff's Opposition to Defendants' Motion to Preclude Evidence and References Related to Settlement Orders (Doc. No. 102), it is hereby ordered that Defendants' Motion to Preclude Evidence and References Related to Settlement Orders (Doc. No. 86) is GRANTED.
6. Upon consideration of Plaintiff's Motion in Limine to Preclude Testimony Containing Legal Conclusions and Misstating the Law Concerning an Investment Adviser's Duty to Act in Clients' Best Interests and to Seek Best Execution (Doc. No. 87) and Defendants' Response to Plaintiff's Motion in Limine to Preclude Testimony Containing Legal Conclusions and Misstating the Law Concerning an Investment Adviser's Duty to Act in Clients' Best Interests and to Seek Best Execution (Doc. No. 96), it is hereby ordered that Plaintiff's Motion in Limine to Preclude Testimony Containing Legal Conclusions and Misstating the Law Concerning an Investment Adviser's Duty to Act in Clients' Best Interests and to Seek Best Execution (Doc. No. 87) is GRANTED IN PART and DENIED IN PART.
7. Upon consideration of Plaintiff's Motion in Limine to Preclude Evidence and Argument About Examinations Conducted by Other Entities (Doc. No. 88) and Defendants' Opposition to Plaintiff's Motion in Limine to Preclude Evidence and Argument About Examinations Conducted by Other Entities (Doc. No. 95), Plaintiff's Motion in Limine to Preclude Evidence and Argument About Examinations Conducted by Other Entities (Doc. No. 88) is GRANTED IN PART and DENIED IN PART.
8. Upon consideration of Plaintiff's Motion in Limine to Preclude Argument, Testimony, or Other Evidence Relating to Internal SEC Communications or the SEC Examination Process (Doc. No. 89) and Defendants' Response to Plaintiff's Motion in Limine to Preclude Argument, Testimony, or Other Evidence Relating to Internal SEC Communications or the SEC Examination Process (Doc. No. 94), it is hereby ordered that Plaintiff's Motion in Limine to Preclude Argument, Testimony, or Other Evidence Relating to Internal SEC Communications or the SEC Examination Process (Doc. No. 89) is DENIED. The Court reserves its ruling on the admissibility of the draft examination findings letters. The Commission SHALL produce the policies and procedures governing the examination process in effect during the Relevant Period, and such policies and procedures will be admissible at trial.
9. Upon consideration of Plaintiff's Motion in Limine to Preclude Argument, Testimony, or Other Evidence Relating to Events Occurring After the Relevant Period (20132014) (Doc. No. 90) and Defendants' Opposition to Plaintiff's Motion in Limine to Preclude Argument, Testimony, or Other Evidence Relating to Events Occurring After the Relevant Period (2013-2014) (Doc. No. 97), it is hereby ordered that Plaintiff's Motion in Limine to Preclude Argument, Testimony, or Other Evidence Relating to Events Occurring After the Relevant Period (2013-2014) (Doc. No. 90) is DENIED.
10. Upon consideration of Plaintiff's Motion in Limine to Treat Certain Witnesses as Adverse Parties (Doc. No. 91) and Defendants' Response to Plaintiff's Motion in Limine to Treat Certain Witnesses as Adverse Parties (Doc. No. 98), it is hereby ordered that Plaintiff's Motion in Limine to Treat Certain Witnesses as Adverse Parties (Doc. No. 91) is GRANTED IN PART and DENIED IN PART.
It is FURTHER ORDERED that the objections to specific exhibits contained in the parties' pretrial memoranda (Docs. No. 103 & 104), are GRANTED IN PART and DENIED IN PART, as detailed in Appendices A and B to this Order.
IT IS SO ORDERED.
APPENDIX A
The Court's Rulings on Defendants' Objections to the Commission's Exhibits
| Exhibit | Document | Objection | Ruling |
| 25 | Investigative Testimony of Charles Bowers, dated December 18, 2018 | Fed. R. Evid. 802 | See Order on Deposition Designations (forthcoming) |
| 26 | Investigative Testimony of Daniel Nemeth, dated December 18, 2018 | Fed. R. Evid. 802 | See Order on Deposition Designations (forthcoming) |
| 29 | Deposition Testimony of Kathleen McDermott, dated July 24, 2020 | Fed. R. Evid. 802 | See Order on Deposition Designations (forthcoming) |
| 30 | Deposition Testimony of Ara Jabrayan, dated November 5, 2020 | Fed. R. Evid. 802 | See Order on Deposition Designations (forthcoming) |
| 31 | Declaration of Ara Jabrayan, dated September 9, 2019 | Fed. R. Evid. 802 | SUSTAINED |
| 73 | In re Arleen W. Hughes, 27 S.E.C. 629 (1948) | SUSTAINED | |
| 74 | Securities and Exchange Commission v. Capital Gains Research Bureau, Inc., No. 84 S.Ct. 275 (1963) | SUSTAINED | |
| 75 | In re Kidder, Peabody & Co., Inc., 43 S.E.C. 911 (1968) | SUSTAINED | |
| 76 | Geman v. Securities and Exchange Commission, 334 F.3d 1183 (10th Cir. 2003) | SUSTAINED | |
| 77 | In re IFG Network Securities, Inc., S.E.C. Release No. 2533 (2006) | SUSTAINED | |
| 82 | In re Manarin Investment Counsel, Ltd., S.E.C. Release No. 33-9462, et al. (2013) | SUSTAINED | |
| 83 | In re Montford & Co., Inc., S.E.C. Release No. 3829 (2014) | SUSTAINED | |
| 84 | In re DonaldL. Koch, SEC Release No. 3836, et al. (2014) | SUSTAINED | |
| 85 | NASD Notice to Members: Unit Investment Trust Sales, dated March 2004 | Fed. R. Evid. 403 | SUSTAINED |
| 86 | “FINRA Fines Wachovia Units More than $4.5 Million for Failures Relating to Trust and Mutual Fund Sales,” dated February 12, 2009 | Fed. R. Evid. 403 | SUSTAINED |
| 87 | “FINRA Orders Sun Trust Investment Services to Pay $1.44 Million for Unsuitable UIT, Closed-End Fund and Mutual Fund Transactions,” dated July 22, 2010 | Fed. R. Evid. 403 | SUSTAINED |
| 88 | “Merrill Lynch to Pay More than $2.5 Million Related to UIT Sales Charge Discount Failures,” dated August 18, 2010 | Fed. R. Evid. 403 | SUSTAINED |
| 89 | Indictment, United States v. Thomas J. Kirk | SUSTAINED | |
| 90 | Factual Basis, United States v. Thomas J. Kirk | SUSTAINED | |
| 91 | Letter from Richard W. Westling to the Hon. Martin L.C. Feldman regarding United States v. Thomas J. Kirk, dated November 1, 1996 | Fed. R. Evid. 403 | SUSTAINED |
| 92 | Expert Report of Marti P. Murray, dated December 18, 2020 | Daubert | See Order on Daubert Motions |
| 93 | Expert Rebuttal Report of Marti P. Murray, dated January 15, 2021 | Daubert | See Order on Daubert Motions |
| 108 | “Management Fee Rate Changes for Individual Accounts, Q1 2013 - Q4 2014” | OVERRULED | |
| 109 | “Portion of Accounts Always Charged Less than Schedule Advisory Fee Rate (2013 - 2014)” | OVERRULED |
APPENDIX B
The Court's Rulings on the Commission's Objections to Defendants' Exhibits
Exhibit Document Objection Ruling 201 MIS Certificate of OrganizationDomestic Limited Liability Company Fed. R. Evid. 403 OVERRULED 202 MIA Certificate of Conversion and Articles of Organization Fed. R. Evid. 403 OVERRULED 203 MIA SEC Registration Fed. R. Evid. 403 OVERRULED 204 MIA-MIS Intercompany Sharing Agreement Fed. R. Evid. 403 OVERRULED 232 - 266 RBC Settlement Statements (Commission Run), dated monthly from February 2015 - December 2016 Fed. R. Evid. 403 RULING RESERVED 268 - 273 RBC Best Execution “Regular and Rigorous Review for Q1 2013 - Q4 2014 Fed. R. Evid. 403; Fed. R. Evid. 802 OVERRULED 276 MIA Regular Discretionary Investment Advisory Agreement Fed. R. Evid. 403 OVERRULED 305 RBC Prospectus Delivery Confirmation Reports Fed. R. Evid. 802 OVERRULED 306 RBC Reports Manual Fed. R. Evid. 403 OVERRULED as to slides regarding prospectus delivery; SUSTAINED otherwise 307 FINRA, Report on the Examination of McDermott Investment Services, LLC, dated October 25, 2013 Fed. R. Evid. 403 SUSTAINED 308 Letter from Eugene Bleier, FINRA, to Dean McDermott, dated December 2, 2013 Fed. R. Evid. 403 SUSTAINED 309 Email from Dean McDermott to Ara Jabrayan re: “Regulatry [sic] Office Visit,” dated April 29, 2014 Fed. R. Evid. 403; Fed. R. Evid. 802 RULING RESERVED 310 Email from Dean McDermott to Mike Burnidge re: “Phone Call,” dated July 11, 2014 Fed. R. Evid. 403; Fed. R. Evid. 802 RULING RESERVED 311 Email from Dean McDermott to Mike Burnidge re: “Commissions discussions,” dated July 15, 2014 Fed. R. Evid. 403; Fed. R. Evid. 802 RULING RESERVED 312 Letter from Caroline Holmes, Florida Office of Financial Regulation, to Dean McDermott, dated July 14, 2015 Fed. R. Evid. 403 OVERRULED 10 313 Email from Mark Fowler to Karen Ackerman, et al., re: “McDermott,” dated December 4, 2013 Fed. R. Evid. 403 OVERRULED 314 Email from Cesar Davis to Mark Fowler, et al., re: “McDermott Investment Services, LLC,” dated December 3, 2013 Fed. R. Evid. 403 OVERRULED 319 Email from Mark Fowler to Karen Ackerman, et al., re: “McDermott Investment Services,” dated December 19, 2013 Fed. R. Evid. 403 OVERRULED 321 Mark Fowler Handwritten Notes re: “McDermott Investment” Fed. R. Evid. 403; Fed. R. Evid. 802 OVERRULED 322 Email from Mark Fowler to Karen Ackerman re: “McDermott Investment Services,” dated January 3, 2014 Fed. R. Evid. 403 OVERRULED 323 Email from Mark Fowler to Diane Hagy re: “McDermott Examination UIT Case,” dated February 11, 2014 Fed. R. Evid. 403 OVERRULED 325 Email from Mark Fowler to Karen Ackerman re: “McDermott,” dated March 7, 2014 Fed. R. Evid. 403 OVERRULED 328 Email from Mark Fowler to Diane Hagy re: “McDermott,” dated April 9, 2014 Fed. R. Evid. 403 OVERRULED 329 Email from Mark Fowler to Diane Hagy re: “McDermott Investment Securities,” dated April 14, 2014 Fed. R. Evid. 403 OVERRULED 331 Draft letter from Diane Hagy to Dean McDermott re: “Examination of: McDermott Investment Services, LLC,” dated August XX, 2014 Fed. R. Evid. 403; Fed. R. Evid. 802 RULING RESERVED 332 Draft letter from Diane Hagy to Dean McDermott re: “Examination of: McDermott Investment Services, LLC,” dated August XX, 2014 Fed. R. Evid. 403; Fed. R. Evid. 802 RULING RESERVED 333 Email from Mark Fowler to Karen Ackerman re: “McDermott,” dated September 17, 2014 Fed. R. Evid. 403 OVERRULED 334 Email from Paul Lapinski to Dean McDermott re: “Follow-up request from Examination - December 2013,” dated October 10, 2014 Fed. R. Evid. 403 OVERRULED 11 335 “Examination Information for BrokerDealers, Transfer Agents, Clearing Agencies, Investment Advisers, and Investment Companies” Fed. R. Evid. 403 SUSTAINED 336 Email from Mark Fowler to Karen Ackerman re: “McDermott,” dated December 15, 2014 Fed. R. Evid. 403 OVERRULED 337 Email from Paul Lapinski to Mark Fowler re: “McDermott Sarkauskas proceeding,” dated February 20, 2015 Fed. R. Evid. 403 OVERRULED 338 Letter from Diane Hagy to Dean McDermott re: “Examination of McDermott Investment Services, LLC,” dated January 6, 2015 Fed. R. Evid. 403 OVERRULED 339 Email from Karen Ackerman to Mark Fowler re: “McDermott,” dated January 9, 2015 Fed. R. Evid. 403 OVERRULED 340 Letter from Dean McDermott to Diane Hagy re: “Examination of; McDermott Investment Services,” received February 3, 2015 Fed. R. Evid. 403 OVERRULED 341 Email from Mark Fowler to Diane Hagy re: “McDermott response - update,” dated February 4, 2015 Fed. R. Evid. 403 OVERRULED 342 “Significant Exam Findings: McDermott Investment Services, LLC and McDermott Investment Advisors, LLC” Fed. R. Evid. 403 OVERRULED 343 Email from Mark Fowler to Paul Lapinski re: “McDermott,” dated February 20, 2015 Fed. R. Evid. 403 OVERRULED 344 Email from Karen Ackerman to Mark Fowler re: “McDermott,” dated February 19, 2015 Fed. R. Evid. 403 OVERRULED 345 Email from Karen Ackerman to Mark Fowler re: [redacted], dated March 24, 2015 Fed. R. Evid. 403 OVERRULED 346 Email from Diane Hagy to Karen Ackerman, et al., re: “McDermott KPI,” dated March 31, 2015 Fed. R. Evid. 403 OVERRULED 347 Email from Diane Hagy to Brian Sniveley, et al., re: “PLRO McDermott KPI.docx,” dated April 7, 2015 Fed. R. Evid. 403 OVERRULED 12 348 Email from Karen Ackerman to Mark Fowler re: “Questions re McDermott,” dated April 9, 2015 Fed. R. Evid. 403 OVERRULED 349 Email from Mark Fowler to Karen Ackerman re: “McDermott - material requests,” dated April 9, 2015 Fed. R. Evid. 403 OVERRULED 350 Email from Karen Ackerman to Mark Fowler re: “Call on McDermott,” dated April 9, 2015 Fed. R. Evid. 403 OVERRULED 351 Email from Karen Ackerman to Mark Fowler re: “McDermott,” dated April 9, 2015 Fed. R. Evid. 403 OVERRULED 352 Email from Mark Fowler to Karen Ackerman re: “McDermott,” dated April 13, 2015 Fed. R. Evid. 403 OVERRULED 353 Email from Diane Hagy to Mark Fowler re: “BD Staff Meeting,” dated April 30, 2015 Fed. R. Evid. 403 OVERRULED 354 Email from Karen Ackerman to Mark Fowler re: [redacted], dated May 1, 2015 Fed. R. Evid. 403 OVERRULED 355 Email from Karen Ackerman to Diane Hagy re: “Thursday - McDermott,” dated May 15, 2015 Fed. R. Evid. 403 OVERRULED 356 Email from Diane Hagy to Karen Ackerman re: “McDermott,” dated May 18, 2015 Fed. R. Evid. 403 OVERRULED 359 Notes re: “McDermott Investment Services, LLC” Fed. R. Evid. 403 OVERRULED 360 Joint Rule 26(f) Report Fed. R. Evid. 403 SUSTAINED 361 Plaintiff's Initial Disclosures Fed. R. Evid. 403 SUSTAINED 362 Plaintiff Securities and Exchange Commission's Statement of Undisputed Facts in Support of its Motion for Summary Judgment Fed. R. Evid. 403 (with exception of undisputed facts) SUSTAINED 363 Defendants' and Relief Defendant's Statement of Additional Facts that Preclude Summary Judgment Fed. R. Evid. 403 (with exception of undisputed facts) SUSTAINED 364 Plaintiff's Response to Defendants' and Relief Defendant's Statement of Additional Facts Fed. R. Evid. 403 (with exception of undisputed facts) SUSTAINED 365 Sales Charges Analysis (2013 - 2014) Fed. R. Evid. 403 OVERRULED 366 Sales Charges Analysis (2013 - 2017) Fed. R. Evid. 403 SUSTAINED