Securities and Exchange Commission v. Lek Securities Corporation

Background

A jury previously found in favor of the Securities and Exchange Commission. In a March 20, 2020 decision, the court ordered Avalon, Nathan Fayyer, and Sergey Pustelnik to pay $4,495,564 in disgorgement, meaning repayment of gains connected to the misconduct, plus $131,750 in prejudgment interest. The court also assessed a $5 million civil penalty against each of those defendants and permanently barred them from violating Sections 9(a)(2) and 10(b) of the Exchange Act, Rule 10b-5, and Section 17(a) of the Securities Act.

The earlier decision provided that, if the disgorgement order could not be enforced, each defendant’s civil penalty would increase to $7.5 million. The defendants appealed. While the appeal was pending, the Supreme Court decided Liu v. Securities and Exchange Commission, which placed limits on disgorgement orders in SEC enforcement cases. The Second Circuit remanded the case so this court could consider whether its judgment was consistent with Liu.

Positions on Remand

The parties submitted briefing on the effect of Liu. The SEC conceded that the disgorgement remedy in the March 20, 2020 decision was no longer enforceable and asked the court to impose the $7.5 million penalty against each defendant as the alternative remedy. The defendants objected. The court stated that the objections had either already been rejected in the earlier decision or were otherwise unpersuasive.

Ruling

Judge Denise Cote ordered Avalon, Nathan Fayyer, and Sergey Pustelnik each to pay a $7.5 million civil penalty. The court also ordered that each defendant remain permanently enjoined from violating Sections 9(a)(2) and 10(b) of the Exchange Act, Rule 10b-5, and Section 17(a) of the Securities Act. The order does not impose the earlier disgorgement remedy; it imposes the $7.5 million penalty identified as the alternative to that remedy.