Securities & Exchange Commission v. EspositoSecurities & Exchange Commission v. Esposito
MEMORANDUM AND ORDER
I. INTRODUCTION
In Mаy 2016, Plaintiff Securities and Exchange Commission (the “SEC” or the “Commission”) filed this civil enforcement action against two corporate entities and four individuals, including Lionshare Ventures LLC (“Lionshare”). [ECF No. 1 (hereinafter the “Complaint”)]. The case arises out of allegations that the defendants schemed to offer or sell unregistered securities in violation of federal securities laws and regulations. Currently before the Court is the SEC’s Motion for a Default Judgment against Lionshare [ECF No. 69], which, is supported by a Memorandum of Law [ECF No. 70] and the Declarations of David H. London (“London 2nd Deck”) [ECF No. 70-1] and Mark Albers (“Albers 2nd Deck”) [ECF No. 70-2]. ‘
On May 31, 2016, the SEC served process on Lionshare. [ECF No. 5]. Lionshare did not file an answer or mоtion within the required time period, which prompted this Court to order Lionshare to show cause as to why the Court should not instruct the Clerk to enter a default against it. [ECF No. 20]. On August 1, 2016, Lionshare requested additional time to retain counsel and respond to the Commission’s Complaint or to begin settlement negotiations. [ECF No. 31]. The Court granted Lions-hare’s request and ordered it to file a status report by September 2, 2016. [ECF No. 35]. Lionshare filed .its Answer on September . 1, 2016. [ECF No. 43]. The Answer was signed by Defendant Christopher R. Esposito (“Esposito”) as Managing Director of Lionshare. Id.
On September 7, 2016, the Commission moved to strike-Lionshare’s Answer pursuant to Local Rule 83.5.5(c), which precludes corporations and limited liability companies from proceeding pro se. [ECF
For the reasons set forth below, the SEC’s Motion for Default Judgment against Lionsharе [ECF No. 69] is GRANTED.'
II. LEGAL STANDARD
As set forth in Fed. R. Civ. P. 55(b), “a plaintiff ‘must apply to the court for a default judgment’ where the amount of damages claimed is not a sum certain.” Vazquez-Baldonado v. Domenech,
With regard to damages, Fed. R. Civ. P. 55(b)(2) provides that the court “may conduct hearings or make referrals ... when, to enter or effectuate judgment, it needs to: (A) conduct an accounting; (B) determine the amount of damages; (C) establish the truth of, any allegation by evidence; or (D) investigate any other matter.” A hearing, however, is not necеssarily required, particularly where the pleadings, and the moving party’s affidavits establish the amount of the default judgment. See In re The Home Restaurants, Inc.,
III. DISCUSSION
The SEC argues that the facts alleged in its Complaint pstablish that the defaulting defendant violated federal securities laws by selling and offering to sell unregistered securities in interstate commerce. The SEC further argues that these facts entitle it to а permanent injunction against Lions-hare enjoining it from further violating federal securities laws and regulations, disgorgement of Lionshare’s ill-gotten gains with prejudgment interest, and a civil monetary penalty against Lionshare.
A. Summary of Relevant Facts
The salient facts alleged in the Complaint are summarized below. The Court
i. Relevant Defendants
Esposito is the Managing Director of Lionshare, a privately-held corporation with its principal place of businеss in Dan-vers, MA. Compl. ¶¶10, 14; London 2nd Decl., Ex. A at 19 [ECF No. 42 (hereinafter' “Esposito Ans.”) at ¶ 10], Lionshare is purportedly a business incubator for mi-crocap companies (a microcap company is a business with a market capitalization of $50 million to $300 million). Compl. ¶ 14. Lionshare’s securities have never been registered with the Commission, and it has never registered any securities offerings with the Commission. Id On August 19, 2015, Esposito was subpoenaed to testify as part of the Commission’s investigation that resulted in the filing of this civil action: London 2nd Decl. ¶ 2. Esposito asserted his Fifth Amendment privilege against self-incrimination as to almost every question asked of him. Id.; see generally London 2nd Decl, Ex. A.
Cannabiz Mobile, Inc. (“Cannabiz”) is a corporation purportedly based in Cambridge, MA, but in reality operated out of office space it shares with Lionshare. Compl. ¶ 15; [ECF No.. 40-1 (hereinafter “London Decl.”), Ex. A at 34]. Cannabiz initially claimed to be in the business of mineral exploration in Brazil, and, later, the business of servicing businesses in the medical marijuana industry. Compl. ¶ 15. Before adopting its current name of Can-nabiz, it operated as ReBuilder Medical Technologies, Inc. from March 2007 to August 2012 and as Lion Gold Brazil, Inc. from August 2012 to May 2014. Id. Canna-biz’s stock is not registered with the SEC, and it has not registered any securities offerings with the SEC. Id. Since at least March 2007, however, Cannabiz (and its predecessors) has been quoted and publicly traded on the Over-the-Counter (“OTC”) securities markets (“OTC Markets”). Id.
ii. Allegations
The SEC alleges that, between June 2011 and June 2012, Esposito and Lions-hare raised $556,452 .from 24 investors through an offering of Lionshare Class “B” Membership Interest Shares (“Membership Interest Shares”). Compl. ¶¶2, 16; Esposito Ans. ¶¶2, 16; Albers 2nd Decl. ¶ 7. The Membership Interest Shares were sold in “units,” each of which entitled investors to. 200,000 shares of . Lionshare membership interest, or 1% equity ownership, in Lionshare. Compl, ¶ 16. Neither Esposito-nor Lionshare filed a registration statement for the offering with the Commission. Compl... ,¶ 17; Esposito Ans. ¶2. While certain offerings are exempt from registration, Esposito and Lionshare did not satisfy any of the exemptions contained in the securities laws. Compl. ¶ 18. In addition, Esposito and Lionshare conducted a general solicitation that included cold-calling unaccredited and unsophisticated investors and then failed to provide audited financial statements to investors who did hot meet the “accredited investor” definition of Rule 501(A) of Securities Act Regulation D. Compl. ¶ 18; London 2hd Deck, Ex. A at 39.
In Lionshare’s private placement memorandum (“PPM”), Esposito and Lionshare represented to investors and potential investors that the proceeds of the Membership interest Shares offering would be used to acquire an OTC public company to be named Lion Gold. Compl. ¶ 19. Lion Gold would, in turn, acquire mineral interests and mining operations. Id. Aftеr the
The PPM stated that the Lionshare investor funds would be used for “business acquisition costs (50%),” “promotion & marketing (25%),” “operations, salaries and administrative (12.5%),” “regulatory fees, filings and legal expenses (7.5%),” “working capital (4%),” and “offering expense (1%).” Id. ¶20. Contrary to these representations, Esposito spent over $290,500 of the investor funds for unauthorized personal and business expenses. Id. ¶ 21. In addition, between August 2011 and November 2012, approximately $153,000 of investor funds were used to form Lion Mineracao Ltda. (“Lion Mineracao”), a private Brazilian corporation, for the stated purpose of mining in Brazil. Id. ¶ 22. Although investor funds were used to fund Lion Mineracao, Esposito owned 99.99% of the company while Lionshare investors owned nothing.
In late May 2012, Esposito used approximately $75,000 of Lionshare investor funds to purchase five convertible promissory notes collectively amounting to $711,238, which represented all of the outstanding debt obligations of Cannabiz (then known as ReBuilder). Compl. ¶23. The notes gave Esposito (through Lions-hare) effective control over Cannabiz because they were convertible at any time into 711,238,000 shares of Cannabiz’s common stock (almost 18 times the amount of outstanding shares). Id. ¶ 24. On May 29, 2012, Esposito аssigned one Cannabiz note to Lionshare. Id. The note was convertible to approximately 83 million shares of Can-nabiz. Id. The other four Cannabiz notes were assigned to Esposito’s brother-in-law. Id.
Even though Esposito had no official position with Cannabiz, he (through Lions-hare and his brother-in-law) secretly controlled and funded the company. Id. ¶ 26; London Decl., Ex. A, at 56, 74-76, 172, 174; London Deck, Ex. B (“Chris [Esposi-to] is among the largest debt holders of [Cannabiz] and can sink [it] at any time, as we have no access to capital and are asking Chris to fund the company.”). By virtue of their control over Cannabiz, Esposi-to and Lionshare were “affiliates” of the company. See 17 C.F.R. § 230.144(a)(1) (defining a company’s “affiliаte” as “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with” the company).
Esposito and Lionshare, however, concealed their affiliate status in order to profit from prohibited transactions, such as inducing Cannabiz’s transfer agent to issue to Esposito and others millions of Cannabiz common shares without a restrictive legend. Compl. ¶¶ 27, 28; London Deck, Ex. A at 199-200. Without a restrictive legend, these shares could be sold into the public market despite Esposito and Cannabiz’s having failed to comply with the applicable laws regulating sales of shares owned or controlled by affiliates. Compl. ¶ 29. By hiding their affiliate status and inducing the issuance of unlegended common shares, Esposito and Lionshare contravened an SEC rule prohibiting sales of securities received from an affiliate pri- or to the completion of a one-year holding period. 17 C.F.R. § 230.144(d)(l)(ii).
Moreover, Esposito provided various fraudulent and misleading documents to the transfer agent, which stated that Lionshare was not an affiliate of Cannabiz
On or around October 8, 2012, Esposito directed the transfer agent to issue additional stock certificates without restrictive legends in order to transfer 3.3 million of his personal shares to various investor relations “consultants” as payment for their blasts of promotional emails to potential investors. Id. ¶32. The consultants sold 2,396,000 of their shares to the public, gaining a profit of $62,835; and Esposito personally sold 94,500 shares to the public, gaining $1,950. Id. ¶ 33. All of this occurred before the expiration of the rеquired one-year holding period. Id.; 17 C.F.R. § 230.144(d)(1)(h).
On November 16, 2012 and January 8, 2013, Esposito caused Cannabiz (then known as Lion Gold) to submit information statements, which falsely represented that Lion Mineracao was Lion Gold’s wholly-owned operating subsidiary, to OTC Markets for public disclosure. Id. ¶¶ 35, 37. In reality, Esposito owned 99.99% of Lion Mineracao, while Cannabiz had no ownership stake. Id. The information statements also failed to disclose (i) Esposito and Lionshare’s control over Cannabiz through the convertible promissory notes and (ii) the dilution of shareholder equity that would result if Esposito and Lionshare converted this debt into common stock. Id. ¶ 36. These misrepresentations and omissions left Cannabiz’s investors unаware of Esposito’s control over Cannabiz, his ownership of all its purported mineral assets, and his ability — at any time — to significantly dilute existing shareholders’ ownership interest in Cannabiz by converting debt into equity. Id.
On or about April 3, 2014, Esposito installed James Gondolfe (“Gondolfe”) as Cannabiz’s President, CEO, Chairman, and sole director. Id. ¶ 39; London Deck, Ex. A, at 31, 132, 168-69. At this time, Cannabiz was still known as Lion Gold. Id. Gondolfe acted solely at Esposito’s direction; for example, he unquestioningly signed false and misleading Cannabiz documents that Esposito and others placed in front of him. Compl. ¶ 39; London Deck, Ex. A at 59, 111-12, 121-22, 127-28, 135-40, 152-53, 157-60, 165-68, 171, 177-81, 188-90, 213-14. Esposito used documents bearing Gondolfe’s signature to induce Lion Gold’s transfer agent to issue millions of unlegended shаres, which facilitated the sale of those unregistered shares to the public. Compl. ¶¶48, 50. 8.1 million of these shares went to Lionshare, who then sold them to 11 investors for a profit of $120,575. Id. ¶ 50; Albers 2nd Deck ¶8.
In June 2014, Cannabiz (then known as Lion Gold) issued a press release announcing that its name had changed to Cannabiz and that it had altered its business purpose from mining minerals in Brazil to mobile media and marketing focused on the medical marijuana industry. Compl. ¶44. In August 2014, in order to create more convertible debt to sell for a profit, Esposito caused Cannabiz to issue three additional convertible notes to Lionshare. Id. ¶¶ 45-47. He backdated these notes to appear as though they had been issuеd in 2012, thereby concealing from investors and financial intermediaries that the securities in question had not satisfied Rule 144’s one-year holding period for securities
Esposito, Lionshare, Gondolfe, and Can-nabiz then provided documents containing misrepresentations and false statements to Cannabiz’s transfer agent in order to induce the transfer agent to convert the three backdated notes into more than 8.1-million shares of Cannabiz stock certificates without restrictive legends, thereby facilitating the unregistered sales of these securities 'into the public market. Compl. ¶¶ 47-48. These documents included Can-nabiz Board of Directors resolutions, signed by Gondolfe, which falsely represented that the .notes had been created in 2012 and that Lionshare was not an affiliate of Cannabiz. Id. ¶ 48. Esposito, Lions-hare, Gondolfe, and Cannabiz knew, or were- reckless in not knowing, that the documents Gondolfe had signed contained false statements because' (1) Gondolfe was not even employed by Cannabiz in 2012 (the date that appears on the backdated notes he had signed) and (2) Esposito and Lionshare controlled Cannabiz (and were therefore its affiliates). Id ¶ 49. As a result, Cannabiz’s transfer agent issued more stock certificates without restrictive legends, thereby .facilitating the sale of Cannabiz shares to the public markets notwithstanding the defendants’ misrepresentation and concealment of the Rule 144 restrictions on the sale of the shares based on Esposito and Lionshare’s undisclosed affiliate status. Id. ¶¶ 50-52.
Esposito then arranged for a stock promotion company to send out at least 13 email blasts on October 28 and 29, 2014 that touted Cannabiz’s stock to potential-investors, Id. ¶53. These-blasts were designed to increase Cannabiz’s stock price and trading volume. Id. ¶¶ 53-54. • The blasts successfully raised Cannabiz’s stock price and trading volume, allowing Esposi-to and other defendants to sell their Can-nabiz shares in the public market for a profit in violation of Rule 144’s prohibitions on such sales by affiliates. Id. ¶¶ 55-59; 17 C.F.R. § 230.144(d)(l)(ii). Esposito and Lionshare also sold 'some of Cannabiz’s convertible debt to two purchasers for a total of over $303,000. Id. ¶¶ 60-62. Based on Esposito’s misrepresentations regarding his and Lionshare’s affiliate status, the two purchasers later converted the debt and sold hundreds of millions of Cannabiz shares into the public market between October 2014 and May 2015, again in violation of Rule 144’s restrictions. M. ¶ 63; 17 C.F.R. § 23D.144(d)(l)(ii).
B. Discussion of Liability '
i. Liability under Section 5 ■of the Securities Act
The Complaint’s Fifth Claim for Relief alleges that Lionshare violated Sections 5(a) and 5(c) of the Securities Act of 1933 (“Securities Act”). 15 U.S.C. § 77e(a), (c). Section 5(a) makes it unlawful for anyone to sell, directly or indirectly, securities through the use of any means or instruments of interstate commerce without an effective registration statement. 15 U.S.C. § 77e(a). Section 5(c) similarly prohibits offers to buy or sell securities unless a registration statement has been filed. 15 U.S.C. § 77e(c),
A prima facie case for a violation of Sections 5(a) and 5(c) requires a showing that: ■ (1) no registration statement was in effect as to the securities; (2) -the defendant directly or indirectly offered to sell or sold the securities; and (3) the offer or-sale was made in connection with the use of interstate transportation,- (Communication, or the mails. See SEC v. Spence &
After reviewing the facts alleged in the Complaint, the Court finds that they sufficiently support the claims alleged in the SEC’s Fifth Claim for Relief. First, the Complaint alleges that’Lionshare engaged in the sale or offering of “securities,” as that term is defined in the Securities Act and the Exchange Act of 1934 (“Exchange Act”). 15 U.S.C. § 77b(a)(l); 16 U.S.C. § 78c(a)(10). Compl. ¶ 77. The Complaint also alleges that Lionshare directly engaged in these unregistered sales and offerings of securities, in violation of Section 5(a) and 5(c) of the Securities Act. Id. ¶ 78. In the first sale or offering, between June 2011 and June 2012, Lionshare raised $556,452 from 24 investors by offering Lionshare Membership Interest Shares. Compl. ¶¶2, 16; Esposito. Ans. ¶¶2,- 16; Albers 2nd Decl. ¶7. In the second sale or offering, between April 2014 and September 2014, Lionshare raised $120,575 from 11 investors through the sale of Cannabiz stock certificates without a restrictive legend. Compl. ¶ 50; Albers 2nd Decl. ¶ 8. In the third and final sale or offering, between October 2014 and April 2015, Lionshare raised a total of $303,734 from two investors through the sale of a portion of Cannabiz convertible debt. Compl. ¶¶ 61-62; Albers 2nd Decl. ¶ 9. In total, Lionshare received $980,761 in ill-gotten gains. Finally, the Complaint adequately alleges that these sales and offerings were made in connection with the use of interstate transportation, communication, or the mails. Compl. ¶ 78. Thus, the SEC has made a prima facie showing that Lionshare violated Sections 5(a) and 5(c) of the Securities Act.
Once the SEC pleads a. prima fade violation of Section 5, the defendant bears the burden of proving that the securities or the transactions, qualified for an exemption from registration. See SEC v. Ralston Purina Co.,
ii. Liability under Section 17(a)(2) of1 the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5(b)
The Complaint’s First and' Second Claims for Relief allege that Lionshare violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange. Act, and Rule 10b-5(b). Section 17(a) of the Securities Act prohibits, in the offer or sale of securities: (1) devices, schemes, or artifices to defraud; (2) obtaining money or property by means of materially false or misleading statements or omissions; ’ and (3) transactions, practices, or courses of business that operate as a fraud or deceit. 15 U.S.C. § 77q(a). Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit any person, in connection with the purchase or sale of any security, from, directly or indirectly: (1) employing any device, scheme' or artifice to defraud; (2) making any untrue statement of material fact or omitting-to state a material fact necessary in order to make the statements made not misleading; - or (3) engaging in any transaction, practice, or course of business that operates or would oрerate as a fraud or deceit upon any person. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5; see also SEC v. Tambone,
Section 10(b) and Rule 10b-5(b) thereunder prohibit “mak[ing] any untrue statement of a material fact in connection with the purchase or sale of securities.” Janus Cap. Grp. v. First Derivative Traders,
Section 17(a)(2) prohibits obtaining money or property by means of materially false or misleading statements or omissions in the offer or sale of securities. 15 U.S.C. § 77q(a)(2). In addition to the misrepresentations discussed above, which resulted in Lionshare raising at least $556,452, Compl. ¶ 16, the Complaint alleges that Lionshare also obtained money through the use of numerous misstatements submitted to Cannabiz’s transfer agent, which induced the issuance of millions of shares of common stock without the restrictive legend, id ¶¶ 48-50.
The SEC has also adequately alleged that these misstatements were material. Id. ¶ 65. A fact is material if a reasonable investor would view disclosure of the fact “as having significantly altered the total mix of information made available.” Basic, Inc. v. Levinson,
With respect to the misstatements and omissions regarding Lionshare’s status as an affiliate of Cannabiz, these misstatements and omissions were material because they influenced Cannabiz’s trаnsfer agent to issue stock certificates without the restriction that would have prohibited
The SEC also sufficiently alleges that Lionshare acted with the scienter required for § 17(a)(1) and § 10(b) liability (but not required for § 17(a)(2) or § 17(a)(3) liability). See Aaron,
Here, the Complaint alleges Esposito misappropriated Lionshare investor funds for unauthorized personal purposes. Compl. ¶ 21. The Complaint further alleges that Esposito actively hid his and Lions-hare’s status as an affiliate of Cannabiz to induce Cannabiz’s transfer agent to issue stock certificates without the restriction that would have prohibited their sale prior to the expiration of the one-year holding period, which caused hundreds of millions of Cannabiz shares to be sold to the public despite the legal prohibition on their sale. Compl. ¶¶30;-63. Finally, the Complaint alleges that Esposito instructed Gondolfe to issue three backdated notes to Lions-hare, which were then submitted to OTC Markets for publication. Id. ¶¶ 45-47; London Decl., Ex. A at 158-60.
Thus, the SEC has adequately established Lionshare’s liability under § 17(a)(2), § 10b, and Rule 10b-5(b).
iii. Scheme Liability under § 17(a)(1), (a)(3) of the Securities Act, § 10(b) of the Exchange Act, and Rule 10b-5(a), (£l '
The SEC next.alleges that Lions-hare employed schemes that violated § 17(a)(1) and § 17(a)(3) of the Securities Act and § 10(b) of the Exchange Act and Rule .10b-5(a), (c) thereunder (First and Third Claims for Relief). Scheme liability arises where the defendants employ a deceptive device for the purpose of defrauding investors. See SEC v. Durgarian,
Here, Esposito and Lionshare conducted a brazen scheme to misuse investor money and to create the deceptive appearance that Cannabiz securities were not subjeсt to trading restrictions. They directly or indirectly fabricated corporate documents and regulatory filings, and submitted them to the transfer agent, along with false attorney opinion letters, as part of the scheme to induce the transfer agent to issue hundreds of millions of purportedly unrestricted Cannabiz shares that were ultimately sold to the investing public despite the trading prohibitions on their sale. Compl. ¶¶ 45-48, 63. Moreover, as stated above, the SEC has adequately alleged that Lionshare acted with scienter, an ele
Because the SEC’s Complaint adequately alleges that Lionshare had engaged in a schemе to defraud with scienter, the Court finds that the SEC has properly shown Lionshare’s liability under § 17(a)(1), § 17(a)(3), and Rule 10b-5(a), (c).
IV. RELIEF
A. Disgorgement
In light of Lionshare’s default, the SEC has requested that the Court enter an Order of Disgorgement and Prejudgment' Interest. [ECF No. .69], .In a case involving violations of the federal securities laws, the Court has “broad discretion not only in determining whether or not to order disgorgement but also in calculating the amount to be disgorged.” SEC v. Druffner,
After reviewing the Second Declaration of. Mark Albers [ECF 70-2], the SEC’s forensic accountant, the Court finds that the disgorgement amount requested by the SEC reasonably approximates profits causally connected to the illegal conduct alleged in the Complaint. In order to estimate the appropriate disgorgement figure in this case, Albers reviewed bank records and other documents produced to the SEC, and concluded that Lionshare received $980,761 in ill-gotten gains. Albers 2nd Decl.. ¶¶ 6-9. He then calculated, based on those figures and the interest rate used by the Internal Revenue Service (IRS) in charging interest on tax underpayments, that $126,652 of prejudgment interest- has accrued. Id. ¶¶ 10-11. The Court finds no error in Mr. Albers’ calculations, which represent a reasonable approximation of profits causally connected to Lionshare’s violations.
Prejudgment interest on disgorged profits is also appropriate in order to prevent “defendants from enjoying an interest-free loan on their illicitly-obtained gains.” SEC v. Levine,
Therefore, the Court will order Lions-hare to disgorge a total of $1,107,413 (its ill-gotten gains plus prejudgment interest).
B. Civil Penalties
■ The SEC further argues that the Court should impose civil penalties upon the defaulting defendant, Lionshare, pursuant to § 20(d)(2) of tfie Securities Act, 15 U.S.C. § 77t(d)(2), and § 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3). Those statutes authorize the Court to determine the amount of the penalty “in light of the facts and circumstances.” 15 U.S.C. §§ 78u(d)(3)(B)(i), 77t(d)(2)(A); see SEC v. Kern,
“Civil penalties are intended to punish the individual "wrongdoer and to deter him and others from future securities violations.” SEC v. Monterosso,
Here, the SEC requests that, the Court impose a Tier III (third-tier) penalty of $775,000 against Lionshare, ECF No. 70 at 18-19, whiph is the maximum third-tier penalty in effect from December 10, 1996 through November 2, 2015. See 17 C.F.R. § Pt. 201, Subpt. E, Tbl. I (increasing maximum Tier-Ill penalty to account for inflation adjustments). All of the conduct giving rise to liability for the defendants in this case occurred before May 2015.
The Court finds that, based on the allegations in the SEC’s Complaint, a third-tier penalty against Lionshare is warranted. Lionshare was instrumental in an illicit scheme tq evade the securities laws’ registration requirements. Lionshare, through Esposito, acted with scienter in misappropriating investor funds for'Esposito’s unauthorized personal use, Compl. ¶ 21, actively hiding its status as an affiliate of Cannabiz in order to , induce Cannabiz’s transfer. agent to issue unrestricted stock certificates, Id. ¶¶ 30, 63, and in instructing Gondolfe to issue three backdated notes to Lionshare, which were then- submitted to OTC Markets for publication, Id, ¶¶.45-47; London Deck, Ex. A at 158-60.
Lionshare’s actions caused investors to suffer substantial losses-when the Canna-biz shares they had bought became-worthless after the conversion of Cannabiz debt and the dumping of millions of Cannabiz shares into the public markets. Private investors who purсhased Cannabiz’s convertible debt also sustained losses. In addition, Lionshare has not accepted responsibility for its actions — having defaulted and failed to appear before this Court to defend or explain its conduct. The Court, therefore, imposes a third-tier civil penalty on Lionshare of $775,000. See 17 C.F.R. § 201.1001 and Table I.
C. Permanent Injunction
The SEC has also requested that the Court enter a permanent injunction enjoining Lionshare from committing further violations of the federal securities laws. See 15 U.S.C. § 77t(b); -15 U.S.C. § 78u(d)(l). “An injunction is, appropriate if the Court determines there is a reasonable likelihood that the defendant will violate the laws again in the future.” SEC v. Druffner,
V. CONCLUSION
For the foregoing reasons, the SEC’s Motion for Default Judgment against Lionshare [ECF No. 69] is GRANTED.
SO ORDERED.
Notes
. The remaining 0.01% of Lion Mineracao was owned by R.A., an individual residing in Brazil whom Esposito hired to be his sole representative in Brazil. Compl. ¶ 22.