Re: Gutierrez/Kinney/NevWest "Terminiated" 12-4-09
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Case 2:08-cv-00437-LRH-RJJ Document 135 Filed 12/04/09 Page 1 of 17
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
* * *
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
CMKM DIAMONDS, INC.; URBAN
CASAVANT; JOHN EDWARDS; GINGER
GUTIERREZ; JAMES KINNEY; ANTHONY
TOMASSO; KATHLEEN TOMASSO; 1ST
GLOBAL STOCK TRANSFER, LLC;
HELEN BAGLEY; NEVWEST SECURITIES
CORPORATION; DARYL ANDERSON;
SERGEY RUMYANTSEV; ANTHONY
SANTOS; and BRIAN DVORAK,
Defendants.
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2:08-CV-00437-LRH-RJJ
ORDER
Before the court is Defendant Security and Exchange Commission’s (“Commission”)
Application for Entry of Default Judgment Against Defendants Ginger Gutierrez and James Kinney
(#1321). Defendants have not responded to this suit in any manner.
I. Facts and Procedural History2
This case arises out of the fraudulent sale of unregistered stock of CMKM Diamonds. Inc.
1 Refers to the court’s docket entry number.
2The court accepts the following facts, taken from the complaint, as true.
(“CMKM’), a diamond and gold mining company. In November of 2002, five private Canadian
companies owned by Defendant Urban Casavant entered into a reverse merger with CMKM, a
corporation owned by Defendant John Edwards. As a result of the merger, in exchange for
$2,000,000 and 2.8 billion shares of common stock, CMKM acquired mineral claims in Canada
from the Canadian companies. Casavant became the sole director, as well as the president and
CEO, of CMKM.
From January of 2003, through May of 2005, CMKM issued hundreds of billions of shares
of unrestricted stock to Edwards and Casavant and their nominees. However, this stock was
unregistered. Further, CMKM had no legitimate operations, and its only activities were illegally
issuing and falsely promoting its own stock.
As a result of various promotional activities, approximately 40,000 people purchased
CMKM stock. While CMKM’s stock price varied between $0.0001 and $0.001, CMKM sold
billions of shares into the public markets, and the 40,000 investors lost approximately $64.2
million.
Throughout the course of the scheme, Gutierrez acted as Casavant’s secretary and personal
assistant. In particular, Gutierrez contributed to the fraud in the following ways: (1) in 2003, by
acting as CMKM’s investor relations contact; (2) by regularly delivering documents including
stock certificates, opinion letters, and shareholder lists to and from Defendant Helen Bagley; (3) by
delivering documents to Edwards; (4) by drafting CMKM’s press releases for Casavant’s review;
(5) by maintaining the limited records CMKM kept; (6) by compiling the list of shareholders to
receive additional shares of unrestricted stock as “dividends” in September of 2004; (7) by having
signatory authority on many of Casavant’s and CMKM’s bank accounts, writing checks, and wiring
money on Casavant’s behalf; and (8) by overseeing some of CMKM’s promotional activities.
From 2003 through 2005, Gutierrez sold approximately 18 billion shares of unrestricted
CMKM stock in her own name, generating approximately $3.1 million. Of that amount, Gutierrez
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gave approximately $1.1 million to Casavant.
Kinney acted as Casavant’s intermediary, running errands and arranging promotional
opportunities. In 2003, along with Gutierrez, Kinney also served as CMKM’s investor relations
contact. From 2003 through 2005, Kinney sold approximately 61.4 billion shares of purportedly
unrestricted CMKM stock. Kinney made more than $6.7 million from the sale of these shares and
transferred approximately $3.4 million of those funds to Casavant.
Gutierrez and Kinney also sold CMKM stock through a private corporate shell, Part-Time
Management, Inc. In 2004, Part-Time Management sold approximately 9 billion shares of
unrestricted stock for more than $1.9 million. Of that amount, Gutierrez and Kinney returned
approximately $1.2 million to Casavant.
The Commission initiated this action on April 7, 2008. The same day, the court issued
summonses against all fourteen defendants, including Gutierrez and Kinney. The Commission then
made numerous unsuccessful attempts to personally serve Gutierrez and Kinney.
On July 10, 2008, the Commission filed a motion seeking authorization to serve Gutierrez
and Kinney by publication (#62). On August 14, 2008, the court granted the motion (#86).
Pursuant to the court’s order, beginning on August 22, 2008, the Commission published notice in
five editions of the Las Vegas Sun and the Las Vegas Review Journal. The Commission was also
eventually able to effectuate personal service on both Defendants.
On November 6, 2008, in light of their failure to respond to the Complaint, the Clerk of the
Court entered default against Gutierrez and Kinney (#98). The Commission now seeks the
following relief: (1) a permanent injunction preventing Gutierrez and Kinney from future violations
of the registration provision of the federal securities laws; (2) disgorgement by Gutierrez
individually in the amount of $2,000,000 and payment of prejudgment interest and a third tier civil
penalty; (3) disgorgement by Kinney individually in the amount of $3,300,000 and payment of
prejudgment interest and a third tier civil penalty; (4) disgorgement by Gutierrez and Kinney jointly
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and severally in the amount of $700,000 and payment of prejudgment interest; and (5) “permanent
penny stock bars against Gutierrez and Kinney.” (Def.’s Mot. Default (#132) at 1.)
II. Discussion
Obtaining a default judgment is a two-step process governed by Federal Rule of Civil
Procedure 55. Eitel v. McCool, 782 F.2d 1470, 1471 (9th Cir. 1986). First, Rule 55(a) provides,
“When a party against whom a judgment for affirmative relief is sought has failed to plead or
otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the
party’s default.” Second, after the clerk enters default, a party must seek entry of default judgment
under Rule 55(b).
Upon entry of default, the court takes the factual allegations in the non-defaulting party’s
complaint as true. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987)
(citation omitted). Nonetheless, while entry of default by the clerk is a prerequisite to an entry of
default judgment, “a plaintiff who obtains an entry of default is not entitled to default judgment as a
matter of right.” Warner Bros. Entm’t Inc. v. Caridi, 346 F. Supp. 2d 1068, 1071 (C.D. Cal. 2004)
(citation omitted). Instead, whether a court will grant a default judgment is in the court’s
discretion. Id. (citations omitted).
The Ninth Circuit has identified the following factors as relevant to the exercise of the
court’s discretion in determining whether to grant default judgment: (1) the possibility of prejudice
to the plaintiff; (2) the merits of the plaintiff’s substantive claims; (3) the sufficiency of the
complaint; (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning
material facts; (6) whether the default was due to the excusable neglect; and (7) the strong policy
underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel, 782 F.2d at
1471-72. The court will consider these factors below.
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A. Merits of the Commission’s Substantive Claims
The Commission alleges Gutierrez and Kinney engaged in the unregistered offer and sale of
securities in violation of Sections 5(a) and (c) of the Securities Act of 1933, 15 U.S.C. §§ 77e(a)
and 77e(c). “Section 12(1) of the Securities Act of 1933 imposes liability on any person who
‘offers or sells a security’ in violation of Section 5 of the 1933 Act.” Anderson v. Autotek, 774 F.2d
927, 929 (9th Cir. 1985) (citing 15 U.S.C. § 77e). Sections 5(a) and 5(c) prohibit the offer and sale
of securities through the mail or interstate commerce unless a registration statement has been filed
and is in effect. Id. (citing SEC v. Murphy, 626 F.2d 633, 640 (9th Cir. 1980)). To state a prima
facie case for a violation of Section 5, the Commission must demonstrate the following: (1) the
defendants, directly or indirectly, sold or offered to sell securities; (2) the offer or sale was made
through the mail or interstate commerce; and (3) for those securities, no registration statement was
in effect or had been filed with the Commission. Once the Commission establishes a prima facie
violation, the burden shifts to the defendants to prove that one of the Act’s exceptions to liability
applies. See SEC v. Ralston Purina Co., 346 U.S. 119, 126 (1953); 15 U.S.C. § 77d.
Here, the complaint alleges (1) no registration statement was in effect for the CMKM
securities and (2) Gutierrez and Kinney, personally and through a shell corporation, sold
approximately 88 billion shares of unregistered CMKM stock through means of interstate
commerce. On its face, the complaint states a claim for a Section 5 violation. As a result, taking
the allegations in the complaint as true, the court finds that the Commission has demonstrated that
the merits of its substantive claim support awarding default judgment.
B. Remaining Default Judgment Factors
The remaining default judgment factors also favor the entry of default judgment. Given
Defendants’ failure to appear in this action and the likelihood that Defendants will continue to
withhold the amounts the Commission seeks, the possibility of prejudice in the absence of a default
judgment is great. Likewise, Defendants’ failure to respond indicates their default was not due to
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excusable neglect, and, based on the information before the court, the likelihood of a dispute
concerning material facts appears limited. Thus, despite the strong policy underlying the Federal
Rules of Civil Procedure favoring decisions on the merits, the court finds that an entry of default
judgment is appropriate.
C. Defendants’ Liability
Having concluded that default judgment is warranted, the court must now consider the
extent of Defendants’ liability. As noted, the Commission seeks a permanent injunction,
disgorgement and prejudgment interest, third tier civil penalties, and a penny stock offerings bar.
The court will address each form of relief below.
1. Permanent Injunction
To obtain a permanent injunction, the Commission must show that there is a reasonable
likelihood of future violations of the securities laws. Murphy, 626 F.2d at 655 (citations omitted).
In considering the likelihood of future violations, the court evaluates the totality of the
circumstances. Id. (citations omitted). The Ninth Circuit has identified the following factors as
helpful in the court’s analysis: (1) the degree of scienter involved; (2) the isolated or recurrent
nature of the infraction; (3) the defendant’s recognition of the wrongful nature of his conduct; (4)
the likelihood that future violations might occur; and (5) the sincerity of the defendant’s assurances
against future violations. Id.
These factors support an injunction here. Gutierrez and Kinney sold billions of shares of
unrestricted stock in violation of the securities laws. They engaged in these fraudulent sales for
more than two years and received millions of dollars in gains as a result. Further, neither Gutierrez
nor Kinney have acknowledged their wrongdoing. Although it is not clear whether Defendants
continue to operate in positions providing opportunities for additional misconduct, this factor alone
is not sufficient to tip the balance of factors against an injunction. Accordingly, the court will enter
an injunction prohibiting Defendants from engaging in future violations of the registration
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provisions.
2. Disgorgement and Prejudgment Interest
The court’s authority to order disgorgement of ill-gotten gains and prejudgment interest is
well-established. See SEC v. First Pac. Bancorp, 142 F.3d 1186, 1191 (9th Cir. 1998). The
purpose of disgorgement is to deprive wrongdoers of unjust enrichment while deterring future
violations of the securities laws. Id. To determine the appropriate disgorgement amount, the SEC
need only show “a reasonable approximation of profits causally connected to the violation.” Id. at
1192 n.6 (citation omitted). If this approximation appears unreasonable, defendants bear the
burden of proving a more reasonable figure. SEC v. First City Fin. Corp., 890 F.2d 1215, 1232
(D.C. Cir. 1989).
Disgorgement orders include all gains flowing from the illegal activity and include
prejudgment interest. SEC v. Cross Fin. Servs., Inc., 908 F. Supp. 718, 734 (C.D. Cal. 1995)
(citing SEC v. Lund, 570 F. Supp. 1397, 1404 (C.D. Cal. 1983)). The purpose of ordering payment
of prejudgment interest is to deny defendants any possible profit resulting from illegal activity. Id.
(citing Lund, 570 F. Supp. at 1404). Generally, prejudgment interest is calculated at the postjudgment
rate specified in 28 U.S.C. § 1961. W. Pac. Fisheries, Inc. v. S.S. President Grant, 730
F.2d 1280, 1289 (9th Cir. 1984). This removes any economic incentive to delay and ensures that
“judicially-awarded interest rates are not less than the contemporary cost of money.” Id.
The Commission asks the court to order the following: (1) Gutierrez individually to
disgorge $2 million, representing $3.1 million in sales proceeds minus $1.1 million given to
Casavant; (2) Kinney individually to disgorge $3.3 million, representing $6.7 million in sales
proceeds minus $3.4 million given to Casavant; and (3) Gutierrez and Kinney jointly and severally
to disgorge $700,000, representing $1.9 million in Part-Time Management’s sales proceeds minus
$1.2 million given to Casavant. The court finds that these are reasonable approximations of
Gutierrez’s and Kinney’s profits from their violations.
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The court will also order Gutierrez and Kinney to pay prejudgment interest as follows: (1)
Gutierrez shall pay $176,312.35; (2) Kinney shall pay $290,915.38; and (3) Gutierrez and Kinney
shall pay $61,709.32 individually and severally. Because these figures only represents interest
accrued from March of 2003, through November, 13, 2003, the court will order that (1) Gutierrez
pay an additional $525.44 per week from November 14, 2009, until the date of this order; (2)
Kinney pay an additional $866.98 per week from November 14, 2009, until the date of this order;
and (3) Gutierrez and Kinney, jointly and severally, pay an additional $183.90 per week from
November 14, 2009, until the date of this order. Therefore, Gutierrez shall pay an additional
$1,576.32 in prejudgment interest, for a total of $2,177,888.67, Kinney shall pay an additional
$2,600.94 in prejudgment interest, for a total of $3,593,516.32, and Gutierrez and Kinney, jointly
and severally, shall pay an additional $551.70 in prejudgment interest, for a total of $762,261.02.
3. Civil Penalties
Under the Securities Act, civil penalties are “determined by the court in light of the facts
and circumstances.” 15 U.S.C. § 77t(d)(2)(A). Unlike disgorgement, civil penalties are not only
designed to deter future violations of securities laws but are imposed to punish the individual
violator. SEC v. Moran, 944 F. Supp. 286, 296 (S.D.N.Y. 1996) (quoting H.R.Rep. No. 101-616,
101st Cong., at 1384-1386 (1990)).
The Securities Act assesses civil penalties according to a three-tier system.
15 U.S.C. § 77t(d). First-tier penalties are imposed for any violation of the Securities Act.
15 U.S.C. § 77t(d)(2)(A). Second-tier penalties are imposed for violations involving “fraud, deceit,
manipulation or deliberate or reckless disregard of a regulatory requirement.”
15 U.S.C. § 77t(d)(2)(B). Third-tier penalties are imposed for violations that (1) involve “fraud,
deceit, manipulation, or reckless disregard for a regulatory requirement” and (2) “directly or
indirectly resulted in substantial losses or created a significant risk of substantial losses to other
persons.” 15 U.S.C. § 77t(d)(2)(C).
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Here, the Commission seeks third-tier civil penalties. As discussed above, Gutierrez and
Kinney appear to have sold the shares of CMKM stock knowing that the CMKM stock was
unregistered and knowing that CMKM had no legitimate operations. In doing so, they defrauded
40,000 investors out of over $11 million. Because Gutierrez and Kinney engaged in fraudulent
conduct resulting in substantial losses, the court finds that third-tier civil penalties are warranted.
Courts have calculated third-tier penalties in two ways. First, a court may multiply a
defendant’s violations by a dollar amount. See SEC v. Coates, 137 F. Supp. 2d 413, 430 (S.D.N.Y.
2001); see also 15 U.S.C. § 77t(d)(2). Second, a court may impose a flat penalty equal to a
defendant’s gross pecuniary gain. See SEC v. Solow, 554 F. Supp. 2d 1356, 1368 (S.D. Fla. 2008);
SEC v. Haligiannis, 470 F. Supp. 2d 373, 386 (S.D.N.Y. 2007). Courts routinely consider five
factors, established in SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980), when calculating civil
penalties: (1) the degree of scienter involved; (2) the isolated or recurrent nature of the infraction;
(3) the defendant’s recognition of the wrongful nature of his conduct; (4) the likelihood, because of
the defendant’s professional occupation, that future violations might occur; and (5) the sincerity of
the defendant’s assurances against future violations. See, e.g., SEC v. Alpha Telecom, Inc., 187 F.
Supp. 2d 1250, 1263 (D. Or. 2002) (applying the factors to assess a civil penalty).
The court will employ the second method for calculating third-tier civil penalties and
impose a single fine on each defendant. When faced with a similar array of violations, courts often
order penalties based on a defendant’s gross pecuniary gain. See Haligiannis, 470 F. Supp. 2d at
386 (ordering a $15,000,000 penalty equal to the disgorgement amount “due to difficulty
calculating total number of violations”); SEC v. Interlink Data Network, Inc., et. al., No. 93-3073
R, 1993 WL 603274, *13 (C.D. Cal. Nov. 15, 1993) (ordering a $12,285,035 penalty equal to the
disgorgement amount for 565, 439, and 527 violations because “there are many ways to compute
the amount of a civil penalty under the federal securities law”); SEC v. Invest Better 2001, No.
11427, 2005 WL 2385452, *5 (S.D.N.Y. May 4, 2005) (ordering civil penalty equal to
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disgorgement amount because “the exact number of violations . . . is impossible to determine”);
SEC v. Yuen, 272 Fed. App’x 615, 618 (9th Cir. 2008) (affirming a district court’s penalty equal to
the disgorgement amount as “well within [the district court’s] discretion”).
Given the gravity of their actions, the extent of their fraud, and the magnitude of their unjust
enrichment, penalties equal to each defendant’s gross pecuniary gain are warranted. The Murphy
factors confirm the propriety of this calculation. As noted repeatedly, Gutierrez and Kinney
knowingly defrauded approximately 40,000 investors out of over $11 million. Although it is not
clear whether Defendants are likely to engage in future violations in the future, by failing to appear
in this dispute, they have refused to acknowledge their wrongdoing. As a result, in addition to
ordering disgorgement of ill-gotten gains and prejudgment interest, the court will impose third-tier
penalties equal to Defendants’ respective disgorgement amounts.
4. Penny Stock Bar
Finally, the Commission asks the court to permanently bar Gutierrez and Kinney from
offering penny stocks. In relevant part, 15 U.S.C. § 77t(g) provides, “In any proceeding [brought
pursuant to the Securities Act] against any person participating in . . . an offering of penny stock,
the court may prohibit that person from participating in an offering of penny stock, conditionally or
unconditionally, and permanently or for such period of time as the court shall determine.” 15
U.S.C. § 77t(g)(1)).
In deciding whether a penny stock bar is appropriate, courts have looked to the standard
used for determining whether an individual may be prohibited from acting as an officer or director
of a public company. See SEC v. Indigenous Global Dev. Corp., No. 06-5600, 2008 U.S. Dist.
LEXIS 50434, *54-55 (N.D. Cal. June 30, 2008) (citing SEC v. Wolfson, No. 02-1086, 2006 U.S.
Dist. LEXIS 29543, *29 (D. Utah May 4, 2006)). The Ninth Circuit has identified the following
factors as helpful to the court’s analysis: (1) the egregiousness of the underlying securities
violation; (2) the defendant’s repeat offender status; (3) the defendant’s role or position when he
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engaged in the fraud; (4) the defendant’s degree of scienter; (5) the defendant’s economic stake in
the violation; and (6) the likelihood that misconduct will recur. SEC v. First Pac. Bancorp, 142
F.3d 1186, 1193 (9th Cir. 1998).
The court has considered these factors and finds that a penny stock offering bar is
appropriate. Gutierrez and Kinney sold billions of shares of CMKM penny stock knowing that
CMKM did not have any legitimate operations. As a result of their fraud, they earned millions of
dollars in profit. As such, the court will order Gutierrez and Kinney be permanently barred from
participating in penny stock offerings.
IT IS THEREFORE ORDERED that the Commission’s Application for Entry of Default
Judgment (#132) is GRANTED.
I.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Gutierrez, Kinney, and
their agents, servants, employees, attorneys, and all persons in active concert or participation with
them who receive actual notice of this Final Judgment by personal service or otherwise are
permanently restrained and enjoined from violating Section 5 of the Securities Act, 15 U.S.C. §
77e, by, directly or indirectly, in the absence of any applicable exemption:
(a) Unless a registration statement is in effect as to a security, making use of any means or
instruments of transportation or communication in interstate commerce or of the mails to
sell such security, through the use or medium of any prospectus or otherwise;
(b) Unless a registration statement is in effect as to a security, carrying or causing to be
carried through the mails or in interstate commerce, by any means or instruments of
transportation, any such security for the purpose of sale or for delivery after sale; or
(c) Making use of any means or instruments of transportation or communication in
interstate commerce or of the mails to offer to sell or offer to buy through the use or
medium of any prospectus or otherwise any security, unless a registration statement has
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been filed with the Commission as to such security, or while the registration statement is the
subject of a refusal order or stop order or (prior to the effective date of the registration
statement) any public proceeding or examination under Section 8 of the Securities Act, 15
U.S.C. § 77h.
II.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Gutierrez and Kinney
are permanently barred from participating in an offering of penny stock, including engaging in
activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting
to induce the purchase or sale of any penny stock. A penny stock is any equity security that has a
price of less than five dollars, except as provided in Rule 3a51-1 under the Exchange Act,
17 C.F.R. § 240.3a51-1.
III.
IT IS FURTHER ORDERED that Defendant Gutierrez is individually liable for
disgorgement of $2,000,000, representing profits gained as a result of the conduct alleged in the
Complaint, together with prejudgment interest thereon in the amount of $177,888.67, and a civil
penalty in the amount of $2,000,000 pursuant to Section 20(d) of the Securities Act of 1933, 15
U.S.C. § 77t(d). Gutierrez shall satisfy this obligation by paying $4,177,888.67 within ten business
days to the Clerk of this Court, together with a cover letter identifying Gutierrez as a defendant in
this action; setting forth the title and civil action number of this action and the name of this Court;
and specifying that payment is made pursuant to this Final Judgment. Gutierrez shall
simultaneously transmit photocopies of such payment and letter to the Commission’s counsel in
this action. By making this payment, Gutierrez relinquishes all legal and equitable right, title, and
interest in such funds, and no part of the funds shall be returned to Gutierrez. Gutierrez shall pay
post-judgment interest on any delinquent amounts pursuant to 28 U.S.C. § 1961.
The Clerk shall deposit the funds into an interest bearing account with the Court Registry
12
Investment System (“CRIS”) or any other type of interest bearing account that is utilized by the
Court. These funds, together with any interest and income earned thereon (collectively, the
“Fund”), shall be held in the interest bearing account until further order of the Court. In accordance
with 28 U.S.C. § 1914 and the guidelines set by the Director of the Administrative Office of the
United States Courts, the Clerk is directed, without further order of this Court, to deduct from the
income earned on the money in the Fund a fee equal to ten percent of the income earned on the
Fund. Such fee shall not exceed that authorized by the Judicial Conference of the United States.
The Commission may by motion propose a plan to distribute the Fund subject to the Court’s
approval. Such a plan may provide that the Fund shall be distributed pursuant to the Fair Fund
provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. Regardless of whether any such
Fair Fund distribution is made, amounts ordered to be paid as civil penalties pursuant to this
Judgment shall be treated as penalties paid to the government for all purposes, including all tax
purposes. To preserve the deterrent effect of the civil penalty, Gutierrez shall not, after offset or
reduction of any award of compensatory damages in any Related Investor Action based on
Gutierrez’s payment of disgorgement in this action, argue that he is entitled to, nor shall he further
benefit by, offset or reduction of such compensatory damages award by the amount of any part of
Gutierrez’s payment of a civil penalty in this action (“Penalty Offset”). If the court in any Related
Investor Action grants such a Penalty Offset, Gutierrez shall, within 30 days after entry of a final
order granting the Penalty Offset, notify the Commission’s counsel in this action and pay the
amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission
directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to
change the amount of the civil penalty imposed in this Judgment. For purposes of this paragraph, a
“Related Investor Action” means a private damages action brought against Gutierrez by or on
behalf of one or more investors based on substantially the same facts as alleged in the Complaint in
this action.
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IT IS FURTHER ORDERED that Defendant Kinney is individually liable for disgorgement
of $3,300,000, representing profits gained as a result of the conduct alleged in the Complaint,
together with prejudgment interest thereon in the amount of $293,516.32, and a civil penalty in the
amount of $3,300,000 pursuant to Section 20(d) of the Securities Act of 1933, 15 U.S.C. § 77t(d).
Kinney shall satisfy this obligation by paying $6,893,516.32 within ten business days to the Clerk
of this Court, together with a cover letter identifying Kinney as a defendant in this action; setting
forth the title and civil action number of this action and the name of this Court; and specifying that
payment is made pursuant to this Final Judgment. Kinney shall simultaneously transmit
photocopies of such payment and letter to the Commission’s counsel in this action. By making this
payment, Kinney relinquishes all legal and equitable right, title, and interest in such funds, and no
part of the funds shall be returned to Kinney. Kinney shall pay post-judgment interest on any
delinquent amounts pursuant to 28 U.S.C. § 1961.
The Clerk shall deposit the funds into an interest bearing account with the Court Registry
Investment System (“CRIS”) or any other type of interest bearing account that is utilized by the
Court. These funds, together with any interest and income earned thereon (collectively, the
“Fund”), shall be held in the interest bearing account until further order of the Court. In accordance
with 28 U.S.C. § 1914 and the guidelines set by the Director of the Administrative Office of the
United States Courts, the Clerk is directed, without further order of this Court, to deduct from the
income earned on the money in the Fund a fee equal to ten percent of the income earned on the
Fund. Such fee shall not exceed that authorized by the Judicial Conference of the United States.
The Commission may by motion propose a plan to distribute the Fund subject to the Court’s
approval. Such a plan may provide that the Fund shall be distributed pursuant to the Fair Fund
provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. Regardless of whether any such
Fair Fund distribution is made, amounts ordered to be paid as civil penalties pursuant to this
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Judgment shall be treated as penalties paid to the government for all purposes, including all tax
purposes. To preserve the deterrent effect of the civil penalty, Kinney shall not, after offset or
reduction of any award of compensatory damages in any Related Investor Action based on
Kinney’s payment of disgorgement in this action, argue that he is entitled to, nor shall he further
benefit by, offset or reduction of such compensatory damages award by the amount of any part of
Kinney’s payment of a civil penalty in this action (“Penalty Offset”). If the court in any Related
Investor Action grants such a Penalty Offset, Kinney shall, within 30 days after entry of a final
order granting the Penalty Offset, notify the Commission’s counsel in this action and pay the
amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission
directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to
change the amount of the civil penalty imposed in this Judgment. For purposes of this paragraph, a
“Related Investor Action” means a private damages action brought against Kinney by or on behalf
of one or more investors based on substantially the same facts as alleged in the Complaint in this
action.
V.
IT IS FURTHER ORDERED that Defendants Gutierrez and Kinney are jointly and
severally liable for disgorgement of $700,000, representing profits gained as a result of the conduct
alleged in the Complaint, together with prejudgment interest thereon in the amount of $62,261.02.
Gutierrez and Kinney shall satisfy this obligation by paying $762,261.02 within ten business days
to the Clerk of this Court, together with a cover letter identifying themselves as defendants in this
action; setting forth the title and civil action number of this action and the name of this Court; and
specifying that payment is made pursuant to this Final Judgment. Gutierrez and Kinney shall
simultaneously transmit photocopies of such payment and letter to the Commission’s counsel in
this action. By making this payment, Gutierrez and Kinney relinquish all legal and equitable right,
title, and interest in such funds, and no part of the funds shall be returned to Gutierrez or Kinney.
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Gutierrez and Kinney shall pay post-judgment interest on any delinquent amounts pursuant to 28
U.S.C. § 1961.
The Clerk shall deposit the funds into an interest bearing account with the Court Registry
Investment System (“CRIS”) or any other type of interest bearing account that is utilized by the
Court. These funds, together with any interest and income earned thereon (collectively, the
“Fund”), shall be held in the interest bearing account until further order of the Court. In accordance
with 28 U.S.C. § 1914 and the guidelines set by the Director of the Administrative Office of the
United States Courts, the Clerk is directed, without further order of this Court, to deduct from the
income earned on the money in the Fund a fee equal to ten percent of the income earned on the
Fund. Such fee shall not exceed that authorized by the Judicial Conference of the United States.
The Commission may by motion propose a plan to distribute the Fund subject to the Court’s
approval. Such a plan may provide that the Fund shall be distributed pursuant to the Fair Fund
provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. Regardless of whether any such
Fair Fund distribution is made, amounts ordered to be paid as civil penalties pursuant to this
Judgment shall be treated as penalties paid to the government for all purposes, including all tax
purposes. To preserve the deterrent effect of the civil penalty, Gutierrez and Kinney shall not, after
offset or reduction of any award of compensatory damages in any Related Investor Action based on
Gutierrez and Kinney’s payment of disgorgement in this action, argue that they are entitled to, nor
shall they further benefit by, offset or reduction of such compensatory damages award by the
amount of any part of Gutierrez and Kinney’s payment of a civil penalty in this action (“Penalty
Offset”). If the court in any Related Investor Action grants such a Penalty Offset, Gutierrez and
Kinney shall, within 30 days after entry of a final order granting the Penalty Offset, notify the
Commission’s counsel in this action and pay the amount of the Penalty Offset to the United States
Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an
additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed
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in this Judgment. For purposes of this paragraph, a “Related Investor Action” means a private
damages action brought against Gutierrez and Kinney by or on behalf of one or more investors
based on substantially the same facts as alleged in the Complaint in this action.
VI.
IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for the
purposes of enforcing the terms of this Final Judgment.
VII.
There being no just reason for delay, pursuant to Rule 54(b) of the Federal Rules of Civil
Procedure, the Clerk is ordered to enter this Final Judgment forthwith and without further notice.
IT IS SO ORDERED.
DATED this 4th day of December, 2009.
__________________________________
LARRY R. HICKS
UNITED STATES DISTRICT JUDGE
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camrhon.proboards.com/index.cgi?board=safe&action=display&thread=6075 Gutierrez/Kinney/NevWest "Terminiated" 12-4-09 - ty PJ