Securities & Exchange Commission v. Razmilovic
738 F.3d 14
| 2d Cir. | 2013Background
- SEC sued former Symbol CEO Tomo Razmilovic for widespread accounting and securities fraud that inflated Symbol’s reported revenues/earnings and stock price; complaint alleged >$230M revenue impact and >$530M pre-tax earnings impact.
- Razmilovic lived abroad, was indicted in a related criminal case, and refused to return to the U.S.; he did answer the SEC complaint but declined to appear for a deposition in New York.
- District court ordered Razmilovic to appear in person for a deposition; he willfully refused despite a warning that default was a potential sanction. The court entered default under Fed. R. Civ. P. 37(b)(2)(A)(vi).
- With liability established by default, the court held an evidentiary hearing on remedies; experts disputed the amount of stock-price inflation (SEC expert: $11.54/share; defendant’s expert: $3.42/share).
- District court ordered disgorgement of $41,753,623.04 (executive compensation + stock-transaction gains), prejudgment interest, and a civil penalty equal to one-half of disgorgeable gains; the written judgment contained a clerical error listing the penalty $2M higher than the opinion.
Issues
| Issue | Plaintiff's Argument (SEC) | Defendant's Argument (Razmilovic) | Held |
|---|---|---|---|
| Whether entry of default under Rule 37 was an abuse of discretion | Default appropriate because Razmilovic willfully disobeyed an order to appear and had been warned. | Default was excessive; lesser sanctions or deposition abroad would suffice; Degen bars automatic disentitlement of fugitives. | Affirmed: default proper—sanction for willful discovery violation, not fugitive disentitlement; court considered alternatives and warnings. |
| Whether recusal was required for judicial bias | Court acted within discretion; rulings and administrative errors do not show extrajudicial bias. | Judge displayed bias (urged SEC to reopen, prematurely ruled on motions, favored SEC). | Affirmed: motion to recuse denied; objective standard not met and rulings were within judicial function. |
| Proper scope and calculation of disgorgement (executive compensation and stock profits) | Disgorgement should approximate profits causally attributable to fraud; SEC’s expert methodology reliable. | Disgorgement should be far lower; defendant’s expert more accurate and SEC expert should be excluded. | Affirmed: court reasonably credited SEC expert and found $41,753,623.04 disgorgement to be a reasonable approximation. |
| Prejudgment interest and civil penalty amounts | Interest on full disgorgement period appropriate; penalty at one-half of disgorgement appropriate. | Should not pay interest on amounts frozen by DOJ ($17.4M) during freeze period; judgment contains clerical error on penalty. | Partly vacated/remanded: prejudgment interest award vacated for recalculation concerning frozen funds; civil penalty reduced by clerical correction to amount stated in opinion ($20,876,811.52). |
Key Cases Cited
- Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155 (2d Cir.) (defaulted complaint allegations deemed admitted)
- Degen v. United States, 517 U.S. 820 (1996) (limits on fugitive disentitlement in civil cases)
- Southern New England Tel. Co. v. Global NAPs Inc., 624 F.3d 123 (2d Cir. 2010) (factors for evaluating Rule 37 sanctions)
- Agiwal v. Mid Island Mortgage Corp., 555 F.3d 298 (2d Cir. 2009) (sanctions standards; willfulness/bad faith)
- United States Freight Co. v. Penn Cent. Transp. Co., 716 F.2d 954 (2d Cir. 1983) (notice and opportunity before severe sanctions)
- Sieck v. Russo, 869 F.2d 131 (2d Cir. 1989) (affirming defaults for refusing deposition attendance)
- Nat’l Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639 (1976) (extreme sanctions available to deter discovery abuse)
- SEC v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir.) (disgorgement as equitable remedy; reasonable approximation standard)
- SEC v. Warde, 151 F.3d 42 (2d Cir.) (disgorgement and shifting burden to defendant to show inaccuracy)
- SEC v. Patel, 61 F.3d 137 (2d Cir.) (disgorgement causation standard)
- SEC v. First City Fin. Corp., 890 F.2d 1215 (D.C. Cir.) (recognizing uncertainty in econometric disgorgement calculations)
- SEC v. Lorin, 76 F.3d 458 (2d Cir.) (burden shifts after SEC provides reasonable approximation)
- SEC v. Cavanagh, 445 F.3d 105 (2d Cir.) (disgorgement is remedial; cannot order disgorgement beyond unlawful gains)
- SEC v. Palmisano, 135 F.3d 860 (2d Cir.) (civil remedies serve deterrent purpose)