123 F. Supp. 3d 301
D. Conn.2015Background
- SEC seeks preliminary injunction to continue asset freeze of Defendant and Relief Defendants totaling ~$118.25M.
- Ahmed allegedly conducted decade-long securities fraud, misappropriating tens of millions from Oak Management and investors.
- Alleged misrepresentations and self-dealing include misstated investment prices, forged or misused invoices, and undisclosed personal interests.
- Illicit proceeds allegedly funneled into Bank of America accounts controlled by Ahmed, with roughly $65M in ill-gotten gains.
- Preliminary injunction hearing held July 28–30, 2015; additional related criminal charges filed against Ahmed and spouse.
- Court previously froze assets under a May 7, 2015 TRO and an May 18, 2015 stipulation, with expedited discovery for the PI hearing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SEC’s asset freeze is warranted | SEC argues likelihood of success or at least inferable violation to justify freeze | Relief Defendants contend assets may be excessive and some funds are untainted | Yes; asset freeze upheld to preserve assets for potential disgorgement/penalties |
| Merits viability of Company C transaction claim | Ahmed breached duties by nondisclosure and conflicting interests | Defense argues transfer to wife leaves no ongoing ownership | Likely merits shown; continued freeze justified to cover disgorgement if fraud proven |
| Disgorgement scope against relief defendants | Disgorgement appropriate to deprive ill-gotten gains; not require loss by victim | Disgorgement should be limited to direct losses or tainted funds | Disgorgement applicable; profits may be disgorged even absent victim losses |
| Asset amounts to cover civil penalties | Asset freeze may include funds to satisfy civil penalties | Penalties should be limited if disgorgement already substantial | Court permits freeze to cover both disgorgement and civil penalties |
| Whether to unfreeze certain assets for legal fees or living expenses | Preserve assets for victims and penalties; unfreezing premature | Mrs. Ahmed seeks release of limited funds for necessities | Unfreezing denied as premature; equities favor retaining assets to satisfy potential judgments |
Key Cases Cited
- SEC v. Monarch Funding Corp., 192 F.3d 295 (2d Cir.1999) (fraud elements and aid to disgorgement principles cited)
- SEC v. Cavanagh, 155 F.3d 129 (2d Cir.1998) (framework for relief against assets and obligations of non-defendants)
- Smith v. S.E.C., 653 F.3d 121 (2d Cir.2011) (substantial likelihood of success for SEC actions not requiring irreparable harm)
- S.E.C. v. Byers, 2009 WL 33434 (S.D.N.Y. Jan. 7, 2009) (asset freeze standards; not included due to WL citation in text)
- S.E.C. v. Contorinis, 743 F.3d 296 (2d Cir.2014) (disgorgement as remedy for profits regardless of victim damages)
- S.E.C. v. Heden, 51 F.Supp.2d 296 (S.D.N.Y.1999) (relief defendants’ assets freezing where primary defendant’s funds involved)
- Rosenthal, 426 Fed.Appx. 1 (2d Cir.2011) (comingled funds support disgorgement against relief defendants)
- McGinn, Smith & Co., 752 F.Supp.2d 194 (N.D.N.Y.2010) (ownership and control factors for asset freezes)