Davy v. Paragon Coin, Inc.

Background

The plaintiffs filed a renewed motion for default judgment against Defendant Jayceon Terrell Taylor, also known as “The Game.” Taylor did not oppose the motion. The court vacated the scheduled hearing and decided the motion without oral argument.

In an earlier order, the court had granted in part and denied in part the plaintiffs’ motion for default judgment and had denied default judgment against Taylor. The court had already found that it had subject-matter jurisdiction, that Taylor had been served, and that it had personal jurisdiction over him. It also incorporated its earlier rulings concerning prejudice, excusable neglect, the amount at stake, the preference for decisions on the merits, and the status of PRG Tokens as securities offered or sold through communications containing an untrue or misleading material statement or omission.

Legal standard

Under Federal Rule of Civil Procedure 55(b)(2), a court may grant default judgment after a defendant is in default. Generally, a defaulting defendant is treated as admitting the complaint’s well-pleaded factual allegations, except allegations about the amount of damages; legal conclusions are not automatically admitted. The court applied the factors identified in Eitel v. McCool, including potential prejudice, the merits and sufficiency of the claims, the amount at stake, the possibility of a dispute about material facts, and the federal rules’ preference for decisions on the merits.

Statutory-seller issue

The earlier order had found that the plaintiffs had not shown Taylor could be held liable as a “statutory seller” under Sections 12(a)(1) and 12(a)(2) of the Securities Act of 1933. Those provisions can impose liability on an owner who transfers title to an unregistered security and, under the cited authority, on a person who successfully solicits a securities purchase for that person’s own financial gain. Mere collateral participation or gratuitous advice is insufficient.

The plaintiffs alleged that Paragon employed Taylor as a celebrity endorser to solicit investments and repeatedly described him as a member of Paragon’s advisory board. The complaint did not clearly establish whether Taylor was a Paragon employee or an outside consultant, and it did not clearly allege or provide evidence that Paragon paid him. The plaintiffs pointed to the Paragon White Paper’s reference to founders and team members, including restrictions on liquidating PRG Tokens. On the renewed motion, the court was persuaded that these allegations were sufficient to show Taylor acted for his own gain or Paragon’s gain and therefore could be considered a statutory seller.

Ruling and judgment

The court concluded that each Eitel factor favored default judgment. It granted the plaintiffs’ renewed motion for default judgment concerning the alleged violations of Sections 12(a)(1) and 12(a)(2) of the Securities Act of 1933. The order found Jayceon Terrell Taylor, also known as “The Game,” jointly and severally liable with Paragon, Inc., Jessica VerSteeg, Egor Lavrov, Eugene “Chuck” Bogorad, Alex Emelichev, and Gareth Rhodes for $12,066,000, plus prejudgment and post-judgment interest.

The court also ordered the plaintiffs to file a further status report by July 2, 2021, explaining how they intended to proceed regarding Black Rabbit Holdings and proposing timing for a motion for attorneys’ fees and costs and submission of a final judgment.