Opinion
No. 09-13809.
September 12, 2011
ORDER
Before the Court is Defendant Frank J. Bluestein's ("Defendant's") October 10, 2010 Motion to Stay Proceedings as a result of an August 11, 2010 Involuntary Bankruptcy Petition [Docket #24]. For the reasons set forth below, the motion is DENIED.
I. BACKGROUND FACTS
Plaintiff United States Securities and Exchange Commission ("SEC") filed suit in this Court on September 28, 2009 under the Securities Act 15 U.S.C. § 77t(b) and the Exchange Act, 15 U.S.C. §§ 78u(d), 78u(e) alleging Defendant's involvement in a $250 million Ponzi scheme. Complaint at ¶ 1. Plaintiff requests a permanent injunction against Defendant, a securities broker, from continuing the alleged activities, as well as the disgorgement of "ill-gotten gains," and civil penalties. Id. at pg. 17.
II. THE PRESENT MOTION
Defendant asks for a stay of proceedings pursuant to 11 U.S.C. § 362(a)(1), which states that the filing of a bankruptcy petition generally "operates as a stay, applicable to all entities," including
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title[.]
Notwithstanding Defendant's citation to the general rule, the present action by the SEC is exempt from the automatic stay provision, which creates an exception for the following:
the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or organization's police or regulatory power[.]
§ 362(b)(4). An action seeking "to enforce the police and regulatory authority of a governmental unit, represents one of the exceptions to this `stay' mandate." U.S. ex rel. Lazar v. Worldwide Financial Services, Inc., 2007 WL 4180718, *1 (E.D.Mich. 2007); 11 U.S.C. § 362(b)(4). "In passing this legislation, Congress expressed its intention to permit the continuation of actions and proceedings by governmental units which are designed to redress fraud." Lazar, at *1 (citing H.R. Rep. No. 95-595, at 728 (1977)).
Moreover, the fact that Defendant's petition is "involuntary" does not prevent the SEC from asserting that it is exempted from the stay under § 362(b)(4). See U.S. S.E.C. v. Applegate, 2006 WL 1005302, *1 (N.D. Ohio 2006) (citing Securities and Exchange Commission v. First Financial Group of Texas, 645 F.2d 429, 438 (5th Cir. 1981); Bilzerian v. Securities and Exchange Commission, 146 B.R. 871, 872-73 (Bankr.M.D.Fla. 1992)). Likewise, while the District Court cannot enforce a disgorgement order while the bankruptcy petition is pending, see In re Bilzerian, 146 B.R. 871, 872-873 (Bankr. M.D. Fla. 1992), the fact that Plaintiff seeks disgorgement of Defendant's allegedly ill-gotten gains does not bar the present case from proceeding. Applegate at *1.
In fact, Plaintiff, arguing that this action is exempted from the stay, concedes that the Court cannot enforce an order of disgorgement. "[T]he exception to the automatic stay permits the Commission to pursue this action to the point of the enforcement of a money judgment." Plaintiff's Response at 4.
Defendant's Motion for Stay is DENIED.
SO ORDERED.