SEC v. New Futures Trading, et al. CV-11-532-JL 4/20/12

UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Securities and Exchange Commission

v. Civil No ll-cv-532-JL Opinion No.

New Futures Trading International Corporation and Henry Roche

SUMMARY ORDER

The Securities and Exchange Commission brought this action

to enforce the federal securities laws against defendants New

Futures Trading International Corporation and Henry Roche,

alleging that Roche controlled the operations of New Futures as

part of a scheme to defraud investors. Specifically, the SEC

claims that Roche solicited monies by falsely representing that

they would be invested in stocks or bonds traded through New

Futures, when in fact he used those funds to repay investors in

other schemes or to operate a horse ranch in Ontario, Canada.

The SEC further claims that, in providing some of the investors

in this scheme with promissory notes purportedly issued by New

Futures, the defendants were dealing in unregistered securities,

a further violation of federal law.

On January 31, 2012, this court, acting on motions by the

SEC, entered default against New Futures and Roche for failing to

answer or otherwise respond to the SEC's complaint. Order of Jan. 31, 2012. The court also ordered the SEC to file a motion

for a default judgment and scheduled a damages hearing. The SEC

later filed that motion, together with proposed final judgments

against each of New Futures and Roche.

The SEC also informed the court, however, that a damages

hearing would be unnecessary since Roche is believed to be a

fugitive from justice--he has been indicted on criminal charges

arising out of the same conduct at issue here--and therefore

would in all likelihood not appear at any hearing. Indeed,

neither Roche nor New Futures appeared at an earlier hearing the

court conducted in this case, on the SEC's motion for preliminary

injunction; nor, for that matter, has either appeared in this

action at any point through counsel or otherwise. Accordingly,

the court will formulate the default judgment without conducting

a hearing. See Ortiz-Gonzalez v. Fonovisa,

(1st

Cir. 2002) ("Discretion as to the judgment or the need for a

hearing on damages is vested with the district court.").

Through its complaint, and its motion for default judgment,

the SEC seeks three forms of final relief authorized by the

federal securities laws or this court's eguitable powers: (1) a

permanent injunction against the defendants' future violations of

those laws, see 15 U.S.C. §§ 77t(b), 78u(d)(1); (2) disgorgement

of their ill-gotten gains, together with interest on those sums.

2 see, e.g., SEC v. First Jersey Secs., Inc.,

, 1474-

77 (2d Cir. 1995); and (3) a monetary penalty, see 15 U.S.C.

§§ 77t(d), 78u(d)(3). These requests are granted.

Because default has entered, the defendants are "taken to

have conceded the truth of the factual allegations in the

complaint as establishing the grounds for liability." Ortiz-

Gonzalez ,

(quotation marks omitted). Based on

those allegations, and the declaration submitted with the motion

for default judgment, the SEC is entitled to its sought-after

permanent injunctive relief and civil disgorgement in the amount

of $1,268,907.48 (including $40,917.47 in interest as of the date

the motion was filed, February 29, 2012).

The SEC is also entitled to the imposition of a monetary

penalty against each of the defendants under 15 U.S.C. §§ 77t(d)

and 78u(d)(3). Each of these provisions authorizes a penalty for

"any violation" of the relevant securities laws, with "[t]he

amount of the penalty [to] be determined by the court in light of

the facts and circumstances." The statutes provide that, "[f]or

each violation, the amount of the penalty shall not exceed the

greater of (I) $5,000 . . . or (II) the gross amount of pecuniary

gain to such defendant," though this limit increases to $150,000

(or the amount of the gain) if the violation "involved fraud,

deceit, manipulation, or deliberate or reckless disregard of a

3 regulatory requirement; and . . . directly or indirectly resulted

in substantial losses or created a significant risk of

substantial losses to other persons."1

The allegations of the SEC's complaint establish that the

defendants' conduct as a whole "involved fraud, deceit,

manipulation, or deliberate or reckless disregard of a regulatory

requirement; and . . . directly or indirectly resulted in

substantial losses or created a significant risk of substantial

losses to other persons" so as to warrant a penalty of $150,000

per violation. Those allegations do not indicate, however, how

many separate violations of the securities laws the defendants

perpetrated, and the SEC provides no guidance on this issue in

its motion for default judgment, saying simply, as to the

penalty, that "[t]he exact amount is for this Court's

discretion." Accordingly, the court imposes a total civil

penalty of only $150,000 against each defendant.

1The SEC notes that, as required by the Debt Collection Improvement Act of 1996, it increased the applicable maximum penalty from $100,000 to $150,000 for each violation occurring after March 3, 2009. See

& p t . 201 subpt. E tbl. IV. The specific conduct alleged in the amended complaint occurred after that date. The statutes allow higher penalties against a defendant who is not a natural person, such as New Futures, but because the SEC seeks a penalty of no more than $150,000 per violation the court has not considered any higher amount (based either on this or on the amount of the gain).

4 Finally, the SEC's proposed final judgments provide that the

SEC "may enforce [the provisions] for disgorgement and

prejudgment interest by moving for civil contempt (and/or through

other collection procedures authorized by law) at any time after

14 days following entry." But Rule 69(a) of the Federal Rules of

Civil Procedure provides that "[a] money judgment is enforceable

by a writ of execution, unless the court directs otherwise," and

"a money judgment is not a personal order to the defendant that

normally is enforceable by contempt." 12 James Wm. Moore et al.,

Federal Practice & Procedure § 3011, at 141 & n.9 (2d ed. 1997);

see also 17 C.J.S. Contempt § 15, at 36 (1999). Indeed, as these

sources recognize, holding a debtor in contempt for failing to

pay a money judgment against him would essentially amount to

putting him in "debtors' prison"--a practice that is not

recognized in the United States (though practitioners of

securities fraud may find themselves in prison for the criminal

nature of their conduct, of course).

The SEC does not provide any basis for holding the

defendants in contempt for failing to satisfy the monetary

aspects of the proposed judgments. So the court strikes the

provision of the proposed judgments allowing the SEC to move for

contempt against the defendants if they fail to satisfy their

disgorgement and interest obligations.

5 This is not intended to affect, however, the SEC's ability

to enforce the judgment through a writ of execution and the

proceedings in aid of execution available under applicable law.

See Fed. R. Civ. P. 69(a). Nor is it intended to affect the

SEC's ability to move for contempt against the defendants for

violating other provisions of the proposed judgments, including

those enjoining the defendants from further violations of the

securities law or, for that matter, the provision reguiring each

defendant to pay the civil penalty--as opposed to disgorgement or

the associated interest--within 14 days. Because the provisions

of the federal securities laws authorize this court to order

payment of the penalty, see 15 U.S.C. §§ 77t(d)(3)(A) and

78u(d)(3)(C)(i), this court can hold the defendants in contempt

for failing to comply with that order. See 12 Moore, supra,

§ 3011, at 141 & n.8 (citing Laborers' Pension Fund v. Dirty Work

Unlimited, Inc.,

(7th Cir. 1990)); see also

United States v. Garden Homes, Inc.,

(D.N.H.

1956) (imposing civil contempt for violation of court order to

pay specific sum). So each defendant will be ordered to pay the

penalty within 14 days of the judgment, as proposed by the SEC.

Accordingly, the SEC's motion for default judgment2 is

GRANTED to the extent set forth in this order and otherwise

2Document no. 22.

6 DENIED. The proposed default judgments3 shall be entered with

the modifications set forth herein, and the case shall be closed.

SO ORDERED.

ited States District Judge

Dated: April 20, 2012

cc: Deena R. Bernstein, Esg.

3Document nos. 22-3 and 22-4.

7