634 F.Supp.3d 174
S.D.N.Y.2022Background
- SEC alleges Stubos ran a multi-year pump-and-dump and market-manipulation scheme (Mar. 2012–Apr. 2015) using the Sharp Group (offshore nominees, encrypted devices, nominee accounts) to hide his control of two U.S. penny-stock issuers (Petrosonic and Ener-Core), pay promoters, inflate trading/activity, and secretly sell shares for millions in proceeds.
- Stubos is a Canadian resident; sales were effected on OTC Markets quotation services based in New York; proceeds were wired to accounts used for personal benefit and to purchase real property in the name of his wife, Dori‑Ann Stubos (relief defendant).
- SEC sued (June 6, 2022) for violations of Section 17(a)(1) & (3), Section 10(b) and Rules 10b‑5(a),(c), and Section 9(a)(2); seeks injunctions, disgorgement, penny‑stock and conduct‑based bars, and relief against Dori‑Ann (unjust enrichment/constructive trust).
- Defendants moved to dismiss for lack of personal jurisdiction (Fed. R. Civ. P. 12(b)(2)), failure to state a claim (12(b)(6)), failure to plead fraud with particularity (9(b)), and statute‑of‑limitations (28 U.S.C. § 2462 vs. NDAA ten‑year limit).
- Court denied the motion to dismiss: found sufficient allegations of jurisdictional contacts with the United States via OTC Markets and conduct directed at U.S. investors; held injunctive relief is not time‑barred under § 2462; held the NDAA’s ten‑year limitations period applies retroactively to revive timely disgorgement claims; and found SEC adequately pleaded scheme liability and market manipulation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction | Stubos directed millions of trades via New York OTC Markets and targeted U.S. investors, so contacts with U.S. suffice for nationwide service | Stubos is a Canadian resident who never entered or directly traded in U.S.; attribution of Sharp Group’s U.S. contacts is improper | Jurisdiction proper: directing agents to act in U.S. OTC market and foreseeable effect on U.S. investors suffice; reasonableness not defeated |
| Statute of limitations for disgorgement & injunctions | Disgorgement and equitable relief fall within NDAA 10‑year retroactive extension; injunctions are remedial and not subject to § 2462 five‑year bar | § 2462’s five‑year limit bars disgorgement; NDAA does not revive expired claims or apply retroactively to claims commenced after Kokesh | Injunctive relief is not a § 2462 “penalty” and not time‑barred; NDAA’s 10‑year period applies retroactively (to pending and to cases commenced on/after enactment), so scienter‑based disgorgement claims timely |
| Sufficiency of securities claims (10(b), 17(a), 9(a)(2)) | Alleged scheme (use of nominees, concealed control, paid promotions, manipulative trading) suffices for scheme liability and manipulation; Rule 9(b) pleading standard for conduct‑based fraud satisfied | SEC fails because Stubos did not personally make/promulgate the promotional statements and did not plead falsity of specific statements; 9(b) not satisfied | Claims survive: SEC charged scheme liability under 10b‑5(a)/(c) and 17(a)(1),(3), not 10b‑5(b); scheme liability does not require direct publication by defendant and pleading alleges deceptive acts, manipulative trades, and intent |
| Relief‑defendant claim (Dori‑Ann) | Dori‑Ann received illicit proceeds (Palm Springs property purchase) so unjust enrichment/constructive trust claim valid | No independent claim can stand if SEC’s claims against Stubos fail | Because claims against Stubos survive, the relief‑defendant claim against Dori‑Ann also survives |
Key Cases Cited
- S.E.C. v. Unifund SAL, 910 F.2d 1028 (2d Cir. 1990) (foreign conduct creating direct, foreseeable U.S. effects supports jurisdiction)
- Metro. Life Ins. Co. v. Robertson‑Ceco Corp., 84 F.3d 560 (2d Cir. 1996) (minimum contacts and reasonableness framework)
- Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972) (contacts with U.S. as a whole relevant for securities jurisdiction)
- Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135 (2011) (maker‑of‑statement rule for Rule 10b‑5(b))
- Walden v. Fiore, 571 U.S. 277 (2014) (contacts must be defendant’s own contacts with the forum)
- Gabelli v. S.E.C., 568 U.S. 442 (2013) (§ 2462 accrual rule for fraud/disgorgement)
- Kokesh v. S.E.C., 137 S. Ct. 1635 (2017) (SEC disgorgement is a ‘‘penalty’’ for § 2462 purposes)
- Liu v. Sec. & Exch. Comm’n, 140 S. Ct. 1936 (2020) (limits on SEC disgorgement equitable power)
- Charles Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68 (2d Cir. 2018) (agent‑created contacts can be imputed to defendant)