Securities and Exchange Commission v. Penn

Background

Lawrence E. Penn, III, proceeding without a lawyer, filed his third motion under Rule 60(b) of the Federal Rules of Civil Procedure. He sought relief from the court’s December 21, 2016 and August 22, 2017 orders and, although he did not expressly mention it, from the final judgment against him.

The court’s earlier rulings had found Penn liable for violating provisions of the Securities Exchange Act and the Investment Advisers Act. Those findings relied on admissions Penn made during his state-court guilty-plea proceeding and in his answer in this federal case. The court later permanently barred him from further securities-law violations, ordered him to pay $9,286,916.65 in disgorgement plus interest, and imposed a civil penalty of the same amount. A final judgment was entered, and the Second Circuit dismissed Penn’s appeal.

Penn later received a pardon from then-New York Governor Andrew Cuomo for his state convictions. The pardon said Penn had been represented to the governor as “a fit object of mercy,” but did not state that it was based on innocence. Cuomo’s announcement referred to remorse, rehabilitation, and commitment to the community. The Securities and Exchange Commission opposed Penn’s motion.

Legal standard

Rule 60(b) permits relief from a final judgment in specified extraordinary circumstances. Penn relied on Rules 60(b)(1), 60(b)(5), and 60(b)(6). Rule 60(b)(1) concerns mistake, inadvertence, surprise, or excusable neglect. Rule 60(b)(5) concerns a judgment that has been satisfied, released, or discharged, a judgment based on an earlier judgment that was reversed or vacated, or a prospective application that is no longer equitable. Rule 60(b)(6) is a catchall provision for another reason that justifies relief. The court explained that final judgments should not be reopened lightly and that Rule 60(b)(6) applies only when the more specific provisions do not apply.

Court’s analysis

The court denied the motion to the extent it relied on Rule 60(b)(1) because Penn did not identify a specific mistake. The pardon was issued after the challenged orders, so the court could not have mistakenly failed to consider it when issuing those orders.

The court also denied relief under Rule 60(b)(5). Penn’s arguments were identical to arguments made in his second reconsideration motion, which the court had already rejected. The judgment had not been paid, released, or discharged; it was not based on an earlier judgment that had been reversed or vacated; and the court explained that the rule’s provision concerning prospective application did not apply to this money judgment.

Under Rule 60(b)(6), the court rejected Penn’s argument that the pardon established his innocence. The pardon itself did not give a reason for its issuance, and Penn provided no evidence that innocence was the basis for the governor’s decision. The court also concluded that, even if the pardon had been based on a finding of innocence, Penn identified no authority showing that a pardon would erase his guilty-plea admissions or his admissions in this federal litigation. Those federal-case admissions independently supported the court’s finding that he violated federal securities laws.

The court separately rejected Penn’s remaining arguments because they repeated issues already decided. Those arguments included challenges to the validity of his state conviction, claims that he had not received a proper hearing, objections to the court’s reliance on the conviction, reliance on a 2018 affidavit, and assertions that the money taken from the fund was authorized capital.

Disposition

Judge Valerie Caproni denied Penn’s motion for reconsideration in its entirety and directed the clerk to terminate the motion at docket entry 425. The opinion did not alter the prior final judgment.