Securities and Exchange Commission v. Pierre

Background

The Securities and Exchange Commission brought a civil enforcement action against Ruless Pierre, also identified in the caption as “Rules Pierre,” based on two alleged investment schemes. In the Amongst Friends Investment Scheme, Pierre issued investment notes promising returns as high as 40% every 60 days and personally guaranteed the return of investors’ principal. The SEC alleged that Pierre continued making these promises after suffering substantial trading losses and used money from new investors and money taken from his employer to make purported interest payments.

In the Franchise Investment Scheme, Pierre offered investors interests in fast-food franchises while promising unusually high fixed returns and a share of the franchises’ profits. The opinion states that Pierre began making payments before purchasing the franchises, and that he continued offering the investments despite financial information showing that the businesses had generated minimal profits.

The United States separately prosecuted Pierre for conduct arising from the same schemes. A jury found him guilty of two securities-fraud counts, wire fraud, and structuring financial transactions to evade reporting requirements. He received an eighty-four-month prison sentence, three years of supervised release, restitution of $2,030,337.32, and forfeiture of $3,701,893.91. The Second Circuit affirmed his conviction.

SEC’s Motion

The SEC moved for summary judgment under Federal Rule of Civil Procedure 56 on its First Cause of Action under Section 17(a) of the Securities Act and its Second Cause of Action under Section 10(b) of the Exchange Act and Rule 10b-5. Summary judgment is a decision without a trial when the evidence shows that no genuine dispute of important fact exists and the moving party is entitled to judgment under the law. Pierre, who was proceeding without a lawyer, did not oppose the motion or respond to the SEC’s statement of undisputed facts.

The SEC argued that a doctrine called collateral estoppel prevented Pierre from relitigating issues decided in his criminal case. Collateral estoppel generally bars a party from contesting an issue that was previously litigated, actually decided, necessary to the prior judgment, and litigated with a full and fair opportunity to present a case.

Court’s Analysis

The court found that the criminal case and the SEC’s civil claims involved largely identical factual allegations and legal issues. Pierre’s criminal securities-fraud convictions were based on violations of Section 10(b) and Rule 10b-5, the same provisions alleged in the SEC’s Second Cause of Action. The court also concluded that the evidence establishing Pierre’s criminal liability established the elements of the SEC’s Section 17(a) claim, including material misstatements or omissions, fraudulent intent where required, and conduct connected to the purchase or sale of securities.

The court further found that Pierre had a full and fair opportunity to litigate the relevant issues. He was represented by counsel at the criminal trial, presented a defense, cross-examined witnesses, presented witness testimony, made a closing argument, challenged the sufficiency of the evidence, and appealed his conviction. The court therefore granted the SEC summary judgment on the First and Second Causes of Action.

Remedies and Disposition

The court permanently enjoined Pierre from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. In deciding that an injunction was warranted, the court relied on the seriousness and continuing nature of the alleged conduct, the evidence of fraudulent intent, Pierre’s limited acknowledgment of wrongdoing, and the possibility that he could commit future securities-law violations after his release from custody.

The court also ordered disgorgement of $1,708,227.32 and prejudgment interest of $339,733.58. Disgorgement requires a violator to give up profits obtained through unlawful conduct. The court deemed both amounts satisfied by the restitution and forfeiture ordered in Pierre’s criminal case.

The court dismissed the Third Cause of Action against Pierre without prejudice. It also dismissed without prejudice all claims against R. Pierre Consulting Group LLC, which the SEC had named as a relief defendant for allegedly holding proceeds of the alleged fraud. The SEC was directed to submit a proposed judgment within ten days, and the clerk was directed to close the pending motion.