905 F. Supp. 2d 507
S.D.N.Y.2012Background
- SEC sues former StarMedia executives for accounting fraud; Scolnik moved for summary judgment on aiding and abetting 13(a), 13(b)(2)(A), and 13b2-1 claims; court grants motion.
- Case concerns contingent, round-trip, or barter revenue transactions in 2000–2001 and StarMedia’s restatement of revenues.
- Judge Holwell previously ruled on related issues; this court reassesses only Scolnik’s knowledge and substantial assistance.
- Key transactions: Gemelo and OKG (2000); AMG and Media4 (2001); contention whether these were contingent/round-trip/barter.
- SEC contends Scolnik knew the transactions’ contingent nature and helped conceal them; court finds knowledge deficient and grants summary judgment.
- Restatement of 2001 revenue and disclosure issues led to SEC restating about $7.5 million of revenues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Scolnik aided a primary 13(a) violation | SEC argues she knew transactions were contingent and assisted. | Scolnik lacked knowledge of contingent terms; evidence insufficent. | Granted in Scolnik’s favor; no genuine issue on knowledge. |
| Whether Scolnik aided a 13(b)(2)(A) violation | Knowledge of improper revenue recognition shown by restatement. | No fact showing Scolnik knew improper features. | Granted in Scolnik’s favor; no genuine issue on knowledge. |
| Whether Scolnik directly violated Rule 13b-2(l) | Scolnik acted recklessly by handling contingent deals. | No evidence of unreasonableness given lack of knowledge. | Granted in Scolnik’s favor; no reasonable basis for recklessness. |
| Whether the SEC can prove substantial assistance given lack of knowledge | Knowledge plus conduct show substantial assistance. | Unable to show knowledge, so no substantial assistance. | Not reached; court already grants on knowledge issue. |
Key Cases Cited
- Espuelas v. Espuelas, 579 F.Supp.2d 461 (S.D.N.Y. 2008) (a prior ruling on aiding and abetting standards and primary violation)
- Espuelas v. Espuelas, 698 F.Supp.2d 415 (S.D.N.Y. 2010) (summary judgment on contingent transactions; 13b-2(l) standards)
- Espuelas v. Espuelas, 699 F.Supp.2d 655 (S.D.N.Y. 2010) (summary judgment on fraud allegations; admissibility concerns)
- Espuelas v. Espuelas, 767 F.Supp.2d 467 (S.D.N.Y. 2011) (primary-liability and knowledge standards in aiding and abetting)
- SEC v. Apuzzo, 689 F.3d 204 (2d Cir. 2012) (applies aiding-and-abetting knowledgeSQ; subsequent treatment of scienter)
- Lucent Technologies, Inc. v. Sec., 610 F.Supp.2d 342 (D.N.J. 2009) (recklessness vs knowledge in Rule 13b-2(l) framework; standard of care)
- In re Bristol-Myers Squibb Sec. Litig., 312 F.Supp.2d 549 (S.D.N.Y. 2004) (motive to meet revenue goals not sufficient for scienter)
- SEC v. McNulty, 137 F.3d 732 (2d Cir. 1998) (Rule 13b-2(l) standards; scienter not required for primary violation)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment standard; reasonable inferences)
- Lyons v. Lancer Ins. Co., 681 F.3d 50 (2d Cir. 2012) (summary-judgment burden; scintilla of evidence insufficient)
- Raskin v. Wyatt Co., 125 F.3d 55 (2d Cir. 1997) (admissibility and weight of lay witness opinion at summary judgment)