Securities and Exchange Commission v. LaGuardia

Background

The Securities and Exchange Commission brought this civil enforcement action against Donald S. LaGuardia, Jr., alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934 and Rule 10b-5, and the Investment Advisers Act of 1940 and Rule 20b(4)-8. The Commission alleged that, from 2013 through 2017, LaGuardia controlled L-R Managers, LLC, an unregistered investment adviser, and used it to defraud investment funds and their investors. The alleged conduct included misappropriating $2.62 million, using improper accounting practices to inflate the funds’ reported values, and making material misrepresentations about audits, expenses, and performance.

A grand jury later indicted LaGuardia in a related criminal case. The indictment charged securities fraud, investment adviser fraud, and wire fraud. The court found substantial factual overlap between the civil and criminal cases, including overlap concerning two investors.

Motion to Intervene

The United States asked to intervene under Federal Rule of Civil Procedure 24(b), which allows a court to permit a person or entity to join a case when it has a claim or defense sharing common legal or factual questions with the case. The Government argued that the civil and criminal cases shared questions about whether LaGuardia violated the Exchange Act and the Advisers Act. Because the Government’s motion was permissible and LaGuardia did not oppose intervention, the court granted the intervention request.

Motion to Stay

The Government also asked the court to stay, meaning pause, the civil proceedings while the criminal case was pending. The court applied six factors: the overlap between the cases; the criminal case’s status; the Commission’s interest in proceeding promptly; LaGuardia’s interests and potential burden; the court’s interests; and the public interest.

The court found that the first factor strongly favored a stay because the cases substantially overlapped. The criminal case had already proceeded to indictment, which also favored a stay. The Commission took no position, making its interest neutral. Although the court recognized LaGuardia’s concerns about harm to his reputation, credibility, business interests, and personal life, it found that those concerns did not outweigh the other factors.

The court also found that a stay would promote judicial efficiency because the criminal case might resolve issues that would otherwise be litigated again in the civil case. It further found that the public interest favored a stay because civil discovery should not be used to bypass restrictions on discovery in a criminal case.

Disposition

Magistrate Judge Stewart D. Aaron granted the Government’s Letter Motion in its entirety. The Government was permitted to intervene, and the proceedings in Securities and Exchange Commission v. LaGuardia were stayed during the pendency of the related criminal case. The parties were directed to submit a joint status update within two weeks after the criminal case concluded.