Securities and Exchange Commission v. Tobia, Jr.

Background

The Securities and Exchange Commission sued Alfred Tobia, Jr. and Elizabeth Lee. This order concerns only Elizabeth Lee. Lee entered a general appearance, accepted the court’s jurisdiction, waived service of the summons and complaint, and consented to entry of a final judgment. She did so without admitting or denying the complaint’s allegations, except as to jurisdiction and the provision addressing exceptions to discharge in bankruptcy.

The court’s order states that Lee agreed to the judgment voluntarily and that the Commission made no threats, promises, offers, or inducements to obtain her consent. Lee also waived findings of fact and conclusions of law, any right to a jury trial, and any right to appeal from the judgment.

Judgment

The court permanently restrained and enjoined Lee from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The injunction covers using interstate commerce, the mail, or a national securities exchange in connection with a securities purchase or sale to commit fraud, make materially false or misleading statements or omissions, or engage in conduct operating as fraud or deceit. It specifically addresses trading on material nonpublic information in breach of a fiduciary or other duty of trust or confidence, and communicating such information to another person for trading purposes.

The court ordered Lee to pay a $576,955 civil penalty to the Commission within 10 days after entry of the judgment. The Commission may use lawful collection procedures and seek civil contempt to enforce the payment obligation. Post-judgment interest applies to amounts remaining due after the 10-day period. The penalty is to be sent to the United States Treasury, and Lee agreed not to seek reimbursement, indemnification, or a tax deduction or credit for the penalty.

The injunction also binds Lee’s officers, agents, servants, employees, attorneys, and persons acting in active concert or participation with them when those persons receive actual notice of the judgment. For purposes of the bankruptcy statute’s exceptions to discharge, Lee stipulated that the complaint’s allegations are true and that debts arising under the judgment are debts for violations of federal securities laws. The court retained jurisdiction to enforce the judgment and directed the clerk to enter it immediately under Rule 54(b).

Court’s Reasoning and Disposition

The court stated that, for reasons discussed in a prior decision, it remained concerned about what it called the Commission’s continued and misguided practice of restraining speech. Nevertheless, citing Lee’s willingness to sign the consent decree and a Second Circuit decision, Judge Ronnie Abrams approved the judgment. The order entered a final judgment as to Elizabeth Lee; the text does not state a disposition as to Alfred Tobia, Jr.