Securities and Exchange Commission v. Calabrigo

Background

The Securities and Exchange Commission (SEC) brought a civil enforcement action against Domenic Calabrigo, Curtis (Curt) Lehner, Hasan Sario, and Courtney Vasseur. The SEC alleged that the defendants participated in a scheme from early 2016 through late 2018 to manipulate the stocks of at least nine microcap issuers. The SEC asserted violations of the Securities Exchange Act of 1934, the Securities Act of 1933, and related regulations.

Each defendant had also been named in an indictment in a related criminal case in the Southern District of New York. The criminal charges involved materially similar allegations of conspiracy to commit securities fraud, wire fraud, and concealment money laundering. Calabrigo had been extradited to the United States and arraigned. Extradition proceedings for Lehner and Vasseur were pending in Canada, and Sario had not been arrested. No trial date had been set in the criminal case.

The Government moved under Federal Rule of Civil Procedure 24 to intervene in the civil case and asked the court to stay, or pause, the entire civil case until the criminal case concluded. Calabrigo consented to a complete stay, while Lehner and Vasseur filed no opposition. The SEC took no position. Sario did not oppose intervention or a stay of new written or oral discovery, but argued that the SEC should still have to provide certain initial disclosures about historical records.

Intervention

Rule 24 permits intervention as of right when a proposed intervenor has an interest related to the action that could be impaired and also permits intervention when the proposed intervenor’s claims or defenses share legal or factual questions with the main action. The court held that the Government had a sufficient interest in preventing civil discovery from being used to bypass the more limited discovery available in the criminal case. The court also found substantial overlap between the SEC’s complaint and the criminal indictment.

The court therefore granted the Government’s motion to intervene for purposes of seeking a stay.

Stay analysis

The court treated a complete stay of civil discovery during related criminal proceedings as an extraordinary remedy but applied the factors used to assess such a request. Those factors included the overlap between the civil and criminal cases, the status of the criminal case, the interests and burdens of the parties, judicial efficiency, and the public interest.

The court found nearly complete overlap because both proceedings involved the same defendants, stock tickers, and alleged methods. The indictment also meant that the risk of parallel proceedings was no longer speculative. These considerations favored a stay.

The court recognized, however, that a stay lasting until the end of the criminal case could be indefinite. Two defendants were awaiting extradition, and Sario was not subject to extradition. The court concluded that a complete stay was justified for one year, subject to possible extension depending on developments in the criminal case.

The court rejected Sario’s request to receive civil initial disclosures while the case was stayed. It reasoned that he sought information resembling criminal discovery without surrendering to the criminal proceedings or accepting the reciprocal obligations that criminal discovery would impose. The court also concluded that preventing civil discovery from giving a defendant an advantage in the criminal case served judicial efficiency and the public interest.

Ruling

Judge Lewis J. Liman granted the Government’s motion to intervene and granted in part and denied in part its motion for a stay. The civil case was stayed for one year from September 30, 2022. The Government was ordered to inform the court no later than two weeks before the stay expired whether it should continue. The court directed the Clerk of Court to close Docket No. 79.