Securities and Exchange Commission v. Longfin Corp.
- Denise Cote
- 1:18-cv-02977
- U.S. District Court · Southern District of New York
- 8
In Securities and Exchange Commission v. Longfin Corp., Judge Cote denied Andy Altahawi’s motion to change a consent judgment based on tax consequences.
Andy Altahawi’s consent judgment remained unchanged, including its characterization of his obligations as disgorgement and civil penalties. The Securities and Exchange Commission’s opposition to the requested modification prevailed.
What happened
In Securities and Exchange Commission v. Longfin Corp., Andy Altahawi asked the court to change a 2019 consent judgment resolving the Securities and Exchange Commission’s claims against him. He said he had not understood the judgment’s tax consequences when he agreed to it.
Altahawi sought language describing his payments as restitution or as payments made to comply with the law, which he said could make them deductible. The Securities and Exchange Commission opposed the request.
Judge Denise Cote denied the motion. She ruled that the judgment was a money judgment, not the kind of continuing order that can be changed under Rule 60(b)(5), and that regret or a late understanding of the law did not justify extraordinary relief under Rule 60(b)(6).
The detailed version
- Securities and Exchange Commission v. Longfin Corp. · No. 1:18-cv-02977
- Denise Cote
- July 21, 2020
Background
The Securities and Exchange Commission charged Andy Altahawi and five co-defendants with violating Section 5 of the Securities Act of 1933. The SEC alleged that they conducted a fraudulent initial public offering of Longfin stock using a registration exemption and made materially misleading statements that increased the stock’s price.
On June 7, 2019, the court entered a consent judgment against Altahawi requiring disgorgement and civil penalties. The judgment did not include an admission of liability. More than a year later, on June 19, 2020, Altahawi moved to modify the judgment under Federal Rules of Civil Procedure 60(b)(5) and 60(b)(6). He asked the court to state that his payments were restitution or payments made to comply with the law, arguing that this treatment could allow him to deduct the payments under Section 162(f) of the Internal Revenue Code.
Rule 60(b)(5)
Rule 60(b)(5) can provide relief from a judgment when applying it prospectively is no longer equitable. The court explained that this provision generally applies to orders that are executory or require supervision of changing conduct or conditions, such as injunctions. It ordinarily does not apply to money judgments.
The court also held that Altahawi had not shown a significant change in facts or law. The tax provision on which he relied had been in effect before he agreed to the consent judgment. His later claim that he did not understand the tax consequences was not the kind of changed circumstance that justified modifying the judgment.
Rule 60(b)(6)
Rule 60(b)(6) allows relief for other reasons that justify it, but only in extraordinary circumstances involving extreme and undue hardship. The court ruled that this provision was not intended to relieve a party from a voluntary agreement that the party later regretted.
The court further explained that claims based on mistake, inadvertence, surprise, or excusable neglect generally belong under Rule 60(b)(1), which has a one-year time limit. Because Altahawi’s argument was based on his alleged failure to understand the judgment’s tax consequences, he could not use Rule 60(b)(6) to avoid that limit.
Disposition
Judge Denise Cote denied Altahawi’s June 19, 2020 motion to alter the June 7, 2019 consent judgment.
Read the full 8-page opinion on CourtListener, the free public archive maintained by the Free Law Project.