SEC v. Illarramendi ( 2018 )

17-1506 (L), 17-1893 (Con), 17-2551 (Con)
SEC v. Illarramendi
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
ASUMMARY ORDER@). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 20th day of April, two thousand eighteen.
PRESENT: BARRINGTON D. PARKER,
REENA RAGGI,
DEBRA ANN LIVINGSTON,
Circuit Judges.
__________________________________________
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff-Appellee,
FRACTAL FUND MANAGEMENT, LTD.,
FRACTAL P HOLDING, LTD., ROWBERROW
TRADING CORP.,
Intervenors-Plaintiffs,
No. 17-1506-cv (L),
v. No. 17-1893-cv (CON),
No. 17-2551-cv (CON)
FRANCISCO ILLARRAMENDI,
Defendant-Appellant,
v.
MICHAEL KENWOOD CAPITAL
MANAGEMENT, LLC, MICHAEL KENWOOD
ASSET MANAGEMENT, LLC, MK ENERGY
AND INFRASTRUCTURE, LLC, MKEI SOLAR,
LP, HIGHVIEW POINT PARTNERS, LLC,
HIGHVIEW POINT LP, HIGHVIEW POINT
OFFSHORE, LTD., HIGHVIEW POINT MASTER
FUND, LTD.,
Defendants,
JOHN J. CARNEY, ESQ.,
Receiver-Appellee.
FOR DEFENDANT-APPELLANT: Francisco Illarramendi, pro se, Fairton,
New Jersey.
FOR PLAINTIFF-APPELLEE: Robert B. Stebbins, General Counsel, John W.
Avery, Deputy Solicitor, Sarah R. Prins, Senior
Attorney, Securities and Exchange Commission,
Washington, D.C.
FOR RECEIVER-APPELLEE: Jonathan B. New, Amy E. Vanderwal, Baker &
Hostetler LLP, New York, New York.
Appeal from a judgment and order of the United States District Court for the District
of Connecticut (Janet Bond Arterton, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment entered on May 24, 2017, is AFFIRMED as modified, and
the order entered on July 20, 2017, is AFFIRMED.
Defendant Francisco Illarramendi, proceeding pro se, appeals from an award of
summary judgment in favor of the United States Securities and Exchange Commission
(“SEC”) and an order denying his motion to modify a temporary restraining order (“TRO”)
freezing his assets. In this enforcement action, the SEC charged Illarramendi with
violations of Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940
(“Advisers Act”), see 15 U.S.C. § 80b-6(1), (2), (4), and Rule 206(4)-8 thereunder, for
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running a five-year-long Ponzi scheme that caused hundreds of millions of dollars of losses
to investors. After a TRO hearing at which Illarramendi testified, the district court granted
the SEC’s motion to freeze his assets as well as those of several financial advising entities
run by Illarramendi, and appointed a receiver (“Receiver”) to handle claims against the
frozen assets. Meanwhile, Illarramendi was criminally prosecuted for five felony
offenses, including a violation of Section 206 of the Advisers Act. He pleaded guilty to
all counts, and later appealed only his sentence, which this court summarily affirmed. See
United States v. Illarramendi, 677 F. App’x 30 (2d Cir. 2017); United States v.
Illarramendi, 642 F. App’x 64 (2d Cir. 2016).
In awarding summary judgment to the SEC, the district court determined that
Illarramendi’s inculpatory testimony at the TRO hearing, as well as his guilty plea in the
criminal proceeding, established his liability for the Advisers Act violations charged in this
civil case, and that Illarramendi failed to adduce evidence raising any issue of material fact,
including any issue pertaining to his affirmative defense of duress. The court ordered
disgorgement in the amount of $25,844,834, which represented the fraudulent gains as
calculated in the criminal proceeding. 1 The court subsequently denied Illarramendi’s
motion to modify the TRO to release funds so that he could retain counsel to pursue his 28
U.S.C. § 2255 collateral challenge to his conviction. These consolidated appeals follow.
1
The district court also imposed a permanent injunction and civil penalties. Because
Illarramendi fails adequately to address these rulings in his appellate brief, we deem any
challenge to them forfeited. See LoSacco v. City of Middletown, 71 F.3d 88, 92–93 (2d
Cir. 1995).
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We assume the parties’ familiarity with the underlying facts and record of prior
proceedings, which we reference only as necessary to explain our decisions to affirm the
summary judgment as modified and to affirm the order.
1. Summary Judgment
On de novo review of an award of summary judgment, see Garcia v. Hartford Police
Dep’t, 706 F.3d 120, 126 (2d Cir. 2013), we will affirm only if the record, viewed most
favorably to the non-moving party, shows “no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law,” Fed. R. Civ. P. 56(a); see Garcia v.
Hartford Police Dep’t, 706 F.3d at 127. To survive a summary judgment motion, the non-
movant must point to more than “‘mere speculation or conjecture as to the true nature of
the facts’” because “‘conclusory allegations or denials . . . cannot by themselves create a
genuine issue of material fact where none would otherwise exist.’” Hicks v. Baines, 593
F.3d 159, 166 (2d Cir. 2010) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir.
1995)).
In challenging summary judgment here, Illarramendi argues that the district court
erred in ruling that his guilty plea in the related criminal case collaterally estopped him
from denying liability for identical Advisers Act violations in the civil case, because he
was then pursuing a collateral challenge to his conviction, see 28 U.S.C. § 2255, on the
ground that the asset freeze in the civil proceeding had denied him counsel of his choice in
violation of constitutional rights recognized by the Supreme Court in Luis v. United States,
136 S. Ct. 1083 (2016). We need not here decide how, if at all, Luis applies to a party
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who was always represented by retained counsel in the criminal proceeding and who never
moved in the criminal case for any assets to be unfrozen. The law is well-established that
a criminal conviction collaterally estops a litigant from challenging in a subsequent civil
action issues decided in that prosecution. See United States v. Podell, 572 F.2d 31, 35 (2d
Cir. 1978); accord United States v. U.S. Currency in the Amount of $119,984.00, 304 F.3d
165, 172 (2d Cir. 2002). Moreover, because “the pendency of an appeal from a conviction
does not deprive a judgment of its preclusive effect,” United States v. 303 W. 116th St.,
New York, New York, 901 F.2d 288, 292 (2d Cir. 1990); see Coleman v. Tollefson, 135 S.
Ct. 1759, 1764 (2015), the same conclusion necessarily applies to a collateral challenge
after affirmance of the conviction on appeal.
Insofar as Illarramendi argues that the deprivation of counsel of choice deprived
him of a full and fair opportunity to litigate his criminal case, as required for collateral
estoppel, see CBF Industria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58, 77 (2d Cir.
2017), he bears the burden of demonstrating such a deprivation, see Proctor v. LeClaire,
715 F.3d 402, 414 (2d Cir. 2013), which he fails to carry here. Notwithstanding
Illarramendi’s vague and conclusory allegations of ineffective assistance of counsel at the
time of his plea, see Hicks v. Baines, 593 F.3d at 166 (conclusory allegations or denials
“cannot by themselves create a genuine issue of material fact”), nothing in the summary
judgment record indicates that, had Illarramendi been represented by different retained
counsel, he would not have pleaded guilty. To the contrary, at his plea allocution,
Illarramendi stated, under oath, that he was satisfied with counsel’s representation. See
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Adames v. United States, 171 F.3d 728, 732 (2d Cir. 1999) (“A criminal defendant’s self-
inculpatory statements made under oath at his plea allocution carry a strong presumption
of verity and are generally treated as conclusive in the face of the defendant’s later attempt
to contradict them.” (internal citations and quotation marks omitted)).
In any event, in granting summary judgment, the district court determined that
Illarramendi’s civil liability was established not only by his guilty plea, but also by his
independent inculpatory sworn admissions at the TRO hearing. Insofar as Illarramendi
now repudiates his TRO admissions, arguing that they were the result of “a layman’s
misunderstanding” of the applicable law, Appellant Br. 10, his argument fails because,
whatever his understanding of the law, the facts he admitted established the elements of
the claimed Advisers Act violations, see United States v. Tagliaferri, 820 F.3d 568, 573
(2d Cir. 2016) (discussing elements of Section 206 claim). Moreover, belated and
unsworn repudiations cannot undermine prior sworn testimony so as to raise a triable issue
of fact. See Moll v. Telesector Res. Grp., Inc., 760 F.3d 198, 205 (2d Cir. 2014)
(“[F]actual issues that a party creates by filing an affidavit crafted to oppose a summary
judgment motion that contradicts that party’s prior testimony are not ‘genuine’ issues for
trial.”).
Illarramendi argues, nevertheless, that he presented sufficient evidence of duress to
survive summary judgment, and, in any event, the district court should have provided him
an alternate forum in which to present evidence without fear of retaliation. This argument
fails because Illarramendi’s vague assertions that he feared reprisal from Petróleos de
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Venezuela, S.A. (“PDVSA”) were insufficient to create a triable issue of fact. See
Salahuddin v. Goord, 467 F.3d 263, 272–73 (2d Cir. 2006). Further, his factually
unsupported claim that extortionate activities compelled his Advisers Act violations is
inconsistent with his repeated claims of PDVSA fraud during the claims process.
Accordingly, we conclude that summary judgment was correctly awarded to the
SEC.
2. Disgorgement
We review Illarramendi’s challenges to the disgorgement award for abuse of
discretion. See SEC v. First Jersey Sec. Inc., 101 F.3d 1450, 1474–76 (2d Cir. 1996); see
also SEC v. Frohling, 851 F.3d 132, 138–39 (2d Cir. 2016). In attempting to show abuse,
Illarramendi asserts that PDVSA submitted a fraudulent claim to the Receiver, without
which there would have been enough funds to cover all other claims and, therefore, his
remuneration was somehow appropriate. Even assuming PDVSA’s claim was fraudulent,
Illarramendi’s belated argument that no loss therefore ensued is unsupported by the
evidence and is insufficient, in any event, to overcome his own prior sworn testimony
admitting that he received “inflated” management fees based on “fictitious” asset gains.
Supp. App’x 28–29.
Illarramendi does not otherwise take issue with the district court’s use of his gains
as calculated in his criminal case to determine the disgorgement amount. He argues only
that disgorgement must be revisited in light of Kokesh v. SEC, 137 S. Ct. 1635 (2017),
because some of the conduct at issue occurred outside of the statute of limitations. The
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SEC agrees and, based on the data used by the court at Illarramendi’s criminal proceeding,
concedes that the ordered disgorgement should be reduced to $25,466,299. 2 Accordingly,
we order modification of the judgment in that single respect.
3. Modification to Asset Freeze Order
We review for abuse of discretion the district court’s denial of Illarramendi’s motion
to modify the TRO to unfreeze certain of his assets. See Smith v. SEC, 653 F.3d 121, 127
(2d Cir. 2011). Illarramendi relies on Luis v. United States, 136 S. Ct. 1083 (2016), to
argue abuse, maintaining that the denial violated his constitutional right to counsel of
choice to challenge his criminal conviction. The argument fails because, by contrast to
Luis, where the government’s interest in “pretrial” frozen assets was still “contingent,” id.
at 1088, 1093 (holding “pretrial restraint of legitimate, untainted assets needed to retain
counsel of choice violates the Sixth Amendment”), Illarramendi stands convicted and
subject to a $370,482,716.54 restitution order. Thus, his frozen assets are no longer “free
and clear.” Id. at 1092. In any event, the Sixth Amendment right to counsel, including
the right to counsel of choice, does not apply in a habeas proceeding. See Harris v. United
States, 367 F.3d 74, 77 (2d Cir. 2004). Moreover, in Illarramendi’s habeas proceeding,
the district court offered to appoint counsel under the Criminal Justice Act, see 18 U.S.C.
2
To the extent Illarramendi suggests that the entire action should be dismissed based on
the statute of limitations, he has waived this argument by failing to raise it as an affirmative
defense in either his answer or on summary judgment. See, e.g., Litton Indus., Inc. v.
Lehman Bros. Kuhn Loeb Inc., 967 F.2d 742, 751–52 (2d Cir. 1992). In any event, the
argument fails on the merits. See Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962,
1969 (2014).
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§ 3006A, if Illarramendi could not in fact afford to retain counsel. In light of these
circumstances and the controlling law, we identify no abuse of discretion in the district
court’s denial of Illarramendi’s motion to modify the TRO to unfreeze assets.
We have considered Illarramendi’s remaining arguments and conclude that they are
without merit. Accordingly, we MODIFY the district court’s summary judgment to
reduce ordered disgorgement to the amount of $25,466,299, and, as thus modified, we
AFFIRM that judgment as well as the district court’s order of July 20, 2017.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
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