Securities and Exchange Commission v. Rinfret
1:19-cv-06037
| S.D.N.Y. | Nov 9, 2020Background
- From 2013–2018 Paul Rinfret, as CIO/portfolio manager of Plandome, solicited limited‑partner investments (≈ $21.5M from at least five outside investors) claiming S&P‑futures/FX trading using a proprietary algorithm, extraordinary multi‑year returns, and ~$25M AUM.
- The complaint alleges those representations were false: Plandome never managed $25M (max ≈ $9M), Rinfret’s trading largely lost money, no auditor was retained, and Rinfret furnished fabricated monthly statements and falsified bank records.
- Rinfret is alleged to have misappropriated investor funds for personal and family expenses and transfers, used the fund account to pay earlier redemptions, and engaged in unsuccessful trading; SEC accounting (Smith Decl.) estimates illicit benefits/transfers of $8,463,171.08.
- The scheme unraveled in 2019 when simultaneous redemptions occurred; Rinfret admitted the fraud to some investors. He was criminally charged, pled guilty to securities and wire fraud, and in Sept. 2020 was sentenced to 63 months and ordered to forfeit ≈ $20.27M.
- SEC sued in June 2019 for violations of § 17(a), § 10(b), and Rule 10b‑5; defendants never appeared, clerk entered defaults, and the SEC moved for default judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Liability under § 10(b)/Rule 10b‑5 and § 17(a) | Rinfret and Plandome made material misstatements/omissions, fabricated records, misappropriated funds, and sold LP interests in connection with securities | No appearance; no defenses asserted | Default judgment: liability established for § 10(b), Rule 10b‑5, and § 17(a) (well‑pleaded allegations accepted as true) |
| Permanent injunctive relief | Past egregious, multi‑year fraud with high scienter and risk of recurrence warrants permanent injunction | No appearance | Granted: permanent injunction against future violations of § 17(a), § 10(b), and Rule 10b‑5 |
| Disgorgement and prejudgment interest | SEC proffers accounting showing net illicit transfers ≈ $8,463,171.08; prejudgment interest to prevent unjust enrichment | No appearance | Granted: disgorgement $8,463,171.08 and prejudgment interest $143,051.57 against Rinfret |
| Civil penalties | Egregious, recurrent fraud causing substantial investor losses supports third‑tier penalties | No appearance | Granted: one‑time maximum statutory penalties by default — $160,000 (Rinfret) and $775,000 (Plandome LLC) |
| Interaction with criminal forfeiture/restitution | SEC asks court to defer entering final judgment until criminal proceedings conclude and to advise how forfeiture/restitution should affect relief here | N/A (criminal proceeding ongoing) | Court withheld entry of final judgment and ordered SEC to submit supplemental briefing after criminal proceedings conclude about impact of forfeiture/restitution; SEC to file updated proposed judgments |
Key Cases Cited
- Cotton v. Slone, 4 F.3d 176 (2d Cir. 1993) (defaulting defendant deemed to admit well‑pleaded allegations)
- City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114 (2d Cir. 2011) (two‑step default judgment framework)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility and evaluating legal conclusions)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (collective‑facts standard for inferring scienter)
- Liu v. SEC, 140 S. Ct. 1936 (2020) (disgorgement limited to wrongdoer’s net profits)
- SEC v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996) (disgorgement and proof standards)
- SEC v. Razmilovic, 738 F.3d 14 (2d Cir. 2013) (burden shifting on disgorgement calculations)