Steven C. Seeger Paul A. Montoya Nicholas J. Eichenseer Chicago, IL, Attorneys for Plaintiff U.S. Securities and Exchange Commission.
AGREED MOTION FOR THE ENTRY OF JUDGMENT AS TO DEFENDANTS
GARY FEINERMAN, District Judge.
The United States Securities and Exchange Commission and defendants Charles J. Dushek ("Dushek Sr."), Charles S. Dushek ("Dushek Jr."), and Capital Management Associates, Inc. ("CMA") (collectively, the "Defendants") have agreed to settle this action in part. In a nutshell, the Defendants have agreed to the entry of judgment against them, on a neither-admit-nor-deny basis, and have agreed to the issuance of injunctions. The accompanying exhibits include the Consents executed by the Defendants (Exs. 1-3), as well as the proposed Judgments (Exs. 4-6). Accordingly, the Commission respectfully moves this Court for the entry of the proposed Judgments.
In support of this motion, the Commission states as follows:
1. On May 16, 2013, the Commission filed the Complaint against the Defendants, alleging violations of the federal securities laws.
2. According to the Complaint, Dushek Sr. owned and controlled CMA, an investment advisory firm based in Lisle, Illinois. In that capacity, he made investment decisions on behalf of CMA clients. His son, Dushek Jr., worked for CMA as the vice president of administration.
3. The Complaint alleges that the Defendants engaged in a "cherry picking" scheme from 2008 to 2012. They engaged in cherry picking by assigning millions of dollars in profitable trades to their personal accounts, and millions of dollars in unprofitable trades to CMA clients.
4. The Complaint also alleges that CMA misrepresented its proprietary trading activities in a brochure distributed to clients.
5. The Complaint includes six Counts. The Complaint basically alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5, as well as violations of Sections 206(1) and 206(2) of the Investment Advisers Act. The Complaint also alleges control-person liability, and advances aiding-and-abetting claims.
6. Specifically, Count I alleges that all three defendants violated Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. Count II alleges that Dushek Sr. is liable for CMA's violations as a control person, and Count III alleges that Dushek Sr. and Dushek Jr. aided and abetted those violations. Counts IV and V allege that Dushek Sr. and CMA violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 [15 U.S.C. §§ 80b-6(1) and 80b-6(2)]. Finally, Count VI alleges that Dushek Sr. and Dushek Jr. aided and abetted those violations.
7. The Complaint seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties from the Defendants. The Complaint also seeks disgorgement, with prejudgment interest, from relief defendant Margaret Dushek (the wife of Dushek Sr.).
8. The Commission and the Defendants have agreed to settle this action in part. Without admitting or denying the allegations in the Complaint, the Defendants have consented to the entry of the proposed Judgments. See Ex. Nos. 1-3. The Defendants and their counsel executed the Consents. Id.
9. The proposed Judgments permanently enjoin the Defendants from violating the securities laws referenced in the Complaint. The proposed Judgments also order the Defendants to pay disgorgement, prejudgment interest thereon, and civil penalties, but leave the determination of the amount of such monetary relief to the Court upon the Commission's motion. The parties may take discovery in connection with the Commission's motion.
10. The Commission commonly enters into such settlements-colloquially referred to as "bifurcated" settlements-in which a defendant consents to non-monetary relief but reserves the right to a judicial determination as to the amount of monetary relief. Accordingly, the Consents and proposed Judgments incorporate the Commission's standardized bifurcated settlement provisions.
11. Without admitting or denying the factual allegations in the Complaint, the Defendants, through their counsel, agree to the relief requested in this motion.
WHEREFORE, the Commission respectfully moves this Court to enter the proposed Judgments as to the Defendants and grant such other and further relief as the Court deems just and appropriate.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
CONSENT OF DEFENDANT CHARLES J. DUSHEK
1. Defendant Charles J. Dushek ("Defendant") waives service of a summons and the complaint in this action, enters a general appearance, and admits the Court's jurisdiction over Defendant and over the subject matter of this action.
2. Without admitting or denying the allegations of the complaint (except as to personal and subject matter jurisdiction, which Defendant admits), Defendant hereby consents to the entry of the Judgment in the form attached hereto (the "Judgment") and incorporated by reference herein, which, among other things:
(a) permanently restrains and enjoins Defendant from violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].
3. Defendant agrees that the Court shall order disgorgement of ill-gotten gains, prejudgment interest thereon, and a civil penalty pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)]. Defendant further agrees that the amounts of the disgorgement and civil penalty shall be determined by the Court upon motion of the Commission, and that prejudgment interest shall be calculated from July 1, 2008, based on the rate of interest used by the Internal Revenue Service for the underpayment of federal income tax as set forth in 26 U.S.C. § 6621(a)(2). Defendant further agrees that the amounts of the disgorgement and civil penalty shall be determined by the Court at a hearing upon motion of the Commission. Defendant further agrees that in connection with the Commission's motion for disgorgement and/or civil penalties, and at any hearing held on such a motion: (a) Defendant will be precluded from arguing that he did not violate the federal securities laws as alleged in the Complaint; (b) Defendant may not challenge the validity of this Consent or the Judgment; (c) solely for the purposes of such motion, the allegations of the Complaint shall be accepted as and deemed true by the Court; and (d) the Court may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of sworn deposition or investigative testimony, and documentary evidence, without regard to the standards for summary judgment contained in Rule 56(c) of the Federal Rules of Civil Procedure. In connection with the Commission's motion for disgorgement and/or civil penalties, the parties may take discovery, including discovery from appropriate non-parties.
4. Defendant waives the entry of findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure.
5. Defendant waives the right, if any, to a jury trial and to appeal from the entry of the Judgment.
6. Defendant enters into this Consent voluntarily and represents that no threats, offers, promises, or inducements of any kind have been made by the Commission or any member, officer, employee, agent, or representative of the Commission to induce Defendant to enter into this Consent.
7. Defendant agrees that this Consent shall be incorporated into the Judgment with the same force and effect as if fully set forth therein.
8. Defendant will not oppose the enforcement of the Judgment on the ground, if any exists, that it fails to comply with Rule 65(d) of the Federal Rules of Civil Procedure, and hereby waives any objection based thereon.
9. Defendant waives service of the Judgment and agrees that entry of the Judgment by the Court and filing with the Clerk of the Court will constitute notice to Defendant of its terms and conditions. Defendant further agrees to provide counsel for the Commission, within thirty days after the Judgment is filed with the Clerk of the Court, with an affidavit or declaration stating that Defendant has received and read a copy of the Judgment.
10. Consistent with 17 C.F.R. 202.5(0, this Consent resolves only the claims asserted against Defendant in this civil proceeding. Defendant acknowledges that no promise or representation has been made by the Commission or any member, officer, employee, agent, or representative of the Commission with regard to any criminal liability that may have arisen or may arise from the facts underlying this action or immunity from any such criminal liability. Defendant waives any claim of Double Jeopardy based upon the settlement of this proceeding, including the imposition of any remedy or civil penalty herein. Defendant further acknowledges that the Court's entry of a permanent injunction may have collateral consequences under federal or state law and the rules and regulations of self-regulatory organizations, licensing boards, and other regulatory organizations. Such collateral consequences include, but are not limited to, a statutory disqualification with respect to membership or participation in, or association with a member of, a self-regulatory organization. This statutory disqualification has consequences that are separate from any sanction imposed in an administrative proceeding. In addition, in any disciplinary proceeding before the Commission based on the entry of the injunction in this action, Defendant understands that he shall not be permitted to contest the factual allegations of the complaint in this action.
11. Defendant understands and agrees to comply with the terms of 17 C.F.R. § 202.5(e), which provides in part that it is the Commission's policy "not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings, " and "a refusal to admit the allegations is equivalent to a denial, unless the defendant or respondent states that he neither admits nor denies the allegations." As part of Defendant's agreement to comply with the terms of Section 202.5(e), Defendant: (i) will not take any action or make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis; (ii) will not make or permit to be made any public statement to the effect that Defendant does not admit the allegations of the complaint, or that this Consent contains no admission of the allegations, without also stating that Defendant does not deny the allegations; and (iii) upon the filing of this Consent, Defendant hereby withdraws any papers filed in this action to the extent that they deny any allegation in the complaint. If Defendant breaches this agreement, the Commission may petition the Court to vacate the Judgment and restore this action to its active docket. Nothing in this paragraph affects Defendant's: (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party.
12. Defendant hereby waives any rights under the Equal Access to Justice Act, the Small Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek from the United States, or any agency, or any official of the United States acting in his or her official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses, or costs expended by Defendant to defend against this action. For these purposes, Defendant agrees that Defendant is not the prevailing party in this action since the parties have reached a good faith settlement.
13. In connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party, Defendant (i) agrees to appear and be interviewed by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission for documents or testimony at depositions, hearings, or trials, or in connection with any related investigation by Commission staff; (iii) appoints Defendant's undersigned attorney as agent to receive service of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable local rules, provided that the party requesting the testimony reimburses Defendant's travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; and (v) consents to personal jurisdiction over Defendant in any United States District Court for purposes of enforcing any such subpoena.
14. Defendant agrees that the Commission may present the Judgment to the Court for signature and entry without further notice.
15. Defendant agrees that this Court shall retain jurisdiction over this matter for the purpose of enforcing the terms of the Judgment.11801180690556880131080
On September 30th CHARLES J. DUSHEK person known to me, personally appeared before me and acknowledged executing the foregoing Consent.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
CONSENT OF DEFENDANT CHARLES S. DUSHEK
1. Defendant Charles S. Dushek ("Defendant") waives service of a summons and the complaint in this action, enters a general appearance, and admits the Court's jurisdiction over Defendant and over the subject matter of this action.
2. Without admitting or denying the allegations of the complaint (except as to personal and subject matter jurisdiction, which Defendant admits), Defendant hereby consents to the entry of the Judgment in the form attached hereto (the "Judgment") ...