Securities & Exchange Commission v. Apuzzo
758 F. Supp. 2d 136
D. Conn.2010Background
- SEC sues Joseph F. Apuzzo under Exchange Act §§ 21(d), 21(e) for aiding and abetting a fraudulent accounting scheme at URI and Terex-related transactions (Terex I and II) from 2000–2002.
- URI sold used equipment to GECC at inflated prices and leased back; Terraex provided remarketing and residual value guarantees; indemnification payments to Terex were concealed via inflated invoices.
- Apuzzo, as Terex CFO, signed backup remarketing documents and other agreements and approved or concealed arrangements meant to misstate revenue and hide interlocking three-party structure.
- Transactions were designed to appear as minor sale-leasebacks, allowing URI to recognize revenue prematurely and inflate profits; damages were hidden from URI’s auditor.
- The SEC alleges Apuzzo knowingly participated in concealing terms and facilitating the misstatement of Terex and URI’s finances; the court grants Apuzzo’s Rule 12(b)(6) motion to dismiss on substantial assistance grounds.
- Court discusses whether the SEC adequately proves actual knowledge, substantial assistance, statute of limitations, and Rule 9(b) pleading; ultimately holds only that actual knowledge is adequately alleged, but substantial assistance is not.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Apuzzo had actual knowledge of the violation | SEC argues Apuzzo knew the wrongdoing | Apuzzo contends lack of sufficient knowledge | Adequate factual basis for actual knowledge of the primary violation |
| Whether Apuzzo substantially assisted the primary violation | Apuzzo aided or facilitated the fraud | No substantial assistance shown | SEC failed to allege substantial assistance |
| Whether any claims are time-barred or pled with particularity | Claims timely and properly pled under Rule 9(b) | Time-barred or insufficient particularity | Not reached due to failure on substantial assistance |
Key Cases Cited
- SEC v. Espuelas, 579 F. Supp. 2d 461 (S.D.N.Y. 2008) (actual knowledge required for aiding and abetting; strong inference of scienter)
- SEC v. PIMCO Advisors Fund Management LLC, 341 F. Supp. 2d 454 (S.D.N.Y. 2004) (fact-specific analysis of substantial assistance; can analogize to Corba facilitation)
- SEC v. Power, 525 F. Supp. 2d 415 (S.D.N.Y. 2007) (mere awareness and approval insufficient for substantial assistance)
- SEC v. Druffner, 353 F. Supp. 2d 141 (D. Mass. 2005) (affirmative conduct showing substantial assistance; specifics matter)
- Patel, 2008 WL 782483 (D. N. H. 2008) (illustrates contrasts in pleading substantial assistance)
- SEC v. Cedric Kushner Promotions, Inc., 417 F. Supp. 2d 326 (S.D.N.Y. 2006) (knowing misconduct required for aiding and abetting)