962 F. Supp. 2d 182
D.D.C.2013Background
- Securities and Exchange Commission sued The Milan Group, Inc., Frank Pavlico III, Brynee Baylor, Baylor & Jackson P.L.L.C., and related relief defendants for a Prime Bank fraud from 2010–2011 causing millions in losses.
- SEC alleged securities fraud under Section 10(b)/Rule 10b-5, Section 17(a), and Sections 5(a)–5(c); aiding-and-abetting theories also asserted.
- Relief Defendants (e.g., Mia Baldassari, Dawn Jackson, Brett Cooper, Patrick Lewis, The Julian Estate) allegedly received ill-gotten funds without legitimate value.
- Investors funded purported bank instruments (standby letters of credit, bank guarantees, MT notes) to be leveraged and monetized, but expert analysis deemed these instruments fictitious.
- Pavlico died mid-litigation; judgment entered against his estate and remaining principals, with disgorgement and prejudgment interest ordered against several defendants; some relief defendants were dismissed or limited to disgorgement.
- SEC sought immediate disgorgement, civil penalties, and injunctive relief; the court found various defendants liable as principals or aiders-and-abettors and denied relief on some counts for certain relief defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Primary securities fraud elements | SEC argues Milan and Pavlico engaged in fraud with scienter | Baylor contends she was only an attorney, not a principal | SEC established primary violations by Milan and Baylor; Baylor liable as principal |
| Aiding and abetting liability | SEC asserts aides provided substantial assistance knowingly or recklessly | Defendants deny substantial participation | Aiding-and-abetting liability found where appropriate mental state shown |
| Section 5 registration violations | Unregistered securities were offered/sold | Contention that defense roles did not constitute offers | Judgment against Principal Defendants for Section 5 violations; Baylor liable for aiding and abetting and registration failures |
| Relief Defendants disgorgement | Equitable relief allows disgorgement of ill-gotten funds from receivers | Some relief defendants claim no legitimate claim to funds | Disgorgement ordered for several relief defendants; some funds released in part or denied based on ownership and earned-amount analysis; others denied release. |
Key Cases Cited
- SEC v. Familant, 910 F. Supp. 2d 83 (D.D.C. 2012) ( cites elements for securities fraud)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality standard for misrepresentation/omission)
- SEC v. Cavanagh, 155 F.3d 129 (2d Cir. 1998) (equitable disgorgement for relief defendants; ill-gotten funds)
- Roth v. SEC, 22 F.3d 1108 (D.C. Cir. 1994) (broker-dealer registration significance)