United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION & ORDER
B. Gottschall United States District Judge
the court is the SEC's motion for award of monetary
remedies and for entry of final judgments as to Defendants
Bosko R. Gasich (“Gasich”), Market Ideas, Inc.
(“Market Ideas”), Robert J. Luiten
(“Luiten”), Scott H. Wilding
(“Wilding”), and Skyline Capital Investments,
Inc. (“Skyline Capital”) (collectively, the
“Settling Defendants”) [ECF No. 87.] Also before
the court is the SEC's motion for award of remedies and
for entry of final judgments as to Defendants Diane D. Dalmy
(“Dalmy”) and Ronald Martino
(“Martino”). [ECF No. 89.] For the following
reasons, the SEC's motions are granted.
SEC's Complaint alleges that the Settling Defendants,
Martino, and Dalmy devised and implemented a
“pump-and-dump” scheme involving the stock of
Zenergy International, Inc.
(“Zenergy”). [Complaint, ECF No. 1.] The SEC's
Complaint generally seeks two categories of relief against
the defendants: injunctions and monetary remedies. Soon after
the SEC filed its Complaint, the Settling Defendants entered
into “bifurcated” settlements, by which they
consented to the injunctive relief sought by the
Pursuant to those settlement agreements, the Court entered
partial consent judgments (“Consent Judgments”)
imposing the injunctive relief sought by the SEC. In addition
to entering injunctive relief, the Consent Judgments also
provide a mechanism for resolving, by motion, the SEC's
remaining claims for monetary relief. As a result, the SEC
has filed the instant motion for monetary
relief-disgorgement, prejudgment interest, and civil
the Consent Judgments state that the Settling Defendants
“shall pay … disgorgement of ill-gotten gains
and pre-judgment interest thereon; [and] the amount of the
disgorgement shall be determined by the court upon motion of
the Commission[.]” [See, e.g., Memo. of Law in
Supp. of Mot. for Award Against Settling Defs., Ex. 5 §
VI, ECF No. 88-6.] With respect to civil penalties, the
Consent Judgments for Gasich and Luiten provide that
“the Court shall determine whether a civil penalty
… is appropriate and, if so, the amount of the
penalty.” [Id., Ex. 5 § VI; Ex. 7 §
V.] The Consent Judgment for Wilding and Skyline Capital,
however, provides that they “shall pay … a civil
penalty” in an amount “determined by the
Court.” [Id., Ex. 6 § III (emphasis
added).] The Consent Judgments further provide that, in
connection with the SEC's motion: (a) the Settling
Defendants are “precluded from arguing that they did
not violate the federal securities laws as alleged in the
Complaint” and (b) “the allegations of the
Complaint shall be accepted as and deemed true by the
the only issues remaining for the court to decide with
respect to the Settling Defendants are the amounts of
disgorgement, prejudgment interest and civil penalties to be
imposed. In making this determination, the court will accept
as true the allegations in the Complaint.
has also filed its motion for monetary relief against
Defendants Martino and Dalmy. On September 30, 2015, in
separate orders, the Court granted the SEC's partial
motions for summary judgment against Defendants Martino
[9/30/15 Order, ECF No. 85] and Dalmy [9/30/15 Order, ECF No.
84]. The SEC alleges that Martino and Dalmy were participants
in the “pump-and-dump” scheme involving the stock
of Zenergy. In its September 30, 2015 orders, the court held
Dalmy, a securities lawyer, liable for violating the
registration requirements of Section 5 of the Securities Act
of 1933 (“Securities Act”), both by selling her
own Zenergy stock and by writing false attorney opinion
letters, which enabled numerous other scheme participants to
sell their Zenergy stock. In a separate order, the court also
found Martino liable for violating Section 17(b) of the
Securities Act by failing to disclose the compensation he was
promised or received for publicly touting Zenergy's
now seeks an Order imposing remedies for the violations of
Martino and Dalmy and for entry of final judgment.
Specifically, the SEC requests an Order (1) holding Martino
and Dalmy liable for disgorgement of their ill-gotten gains;
(2) awarding prejudgment interest; and (3) imposing civil
penalties. In addition to monetary relief, the SEC also seeks
to permanently enjoin Martino and Dalmy from engaging in
conduct that violates the federal securities laws and also
seeks to bar Martino and Dalmy from penny stocks. Despite the
fact that Martino did not settle with the SEC, he did not
respond to the SEC's motion for remedies and final
judgment. Accordingly, there is no evidence to rebut the
claims SEC for monetary and injunctive as to Martino.
S.E.C. v. Cook, 2015 WL 5022152, at *27 (S.D. Ind.
Aug. 24, 2015) (“We note that [Defendant] has
interposed no response or other objection to the SEC's
request for permanent injunction.”). Dalmy, however,
has responded to the SEC's motion for monetary and
THE SEC'S COMPLAINT
noted, the facts of this case are more thoroughly laid out in
this court's September 30, 2015 Order granting partial
summary judgment in favor of the SEC against Dalmy.
Therefore, the court will assume familiarity with the facts.
However, in the interest of identifying each of the parties
at issue in this order, the court will briefly recite the
facts as laid out in the Complaint. Zenergy was founded by
Gasich, Luiten, and a third person who died before the events
giving rise to this case. [Complaint, ¶¶ 20, 21,
ECF No. 1.] Luiten was Zenergy's Chairman and CEO and
managed its day-to-day operations. Gasich, however,
participated in the management of Zenergy as a controlling
shareholder and pursuant to consulting agreements. Luiten and
Gasich were the only two individuals operating Zenergy.
[Id.] According to the SEC, Zenergy had no revenue
or income, nor any assets of consequence and it did not
observe corporate formalities. [Id. ¶ 22.]
2008, Zenergy decided to merge with a publicly traded shell
entity to access publicly traded stock. [Id. ¶
24.] In early 2009, Gasich identified Paradigm for this
purpose. [Id.] At the time, Paradigm purported to be
in the unrelated business of selling handheld metal detectors
and had no operations or assets. [Id. ¶ 25.]
Gasich handled the merger negotiations for Zenergy, and
Wilding negotiated for Paradigm. [Id. ¶ 26.]
Wilding, a stock promoter, was previously ordered by the SEC
to cease and desist from violating the federal securities
laws prohibiting the sale of unregistered securities.
[Id. ¶ 14.] Zenergy and Paradigm entered into a
share exchange agreement, where by Zenergy would be merged
into Paradigm. Through this “reverse merger, ”
Zenergy's shareholders assumed control of Paradigm.
[Id. ¶ 32.]
connection with the reverse merger, Gasich, together with
Wilding and others, planned to distribute 300 million shares
of purportedly unrestricted stock to Gasich's family and
friends, promoters and touters, and associates of Paradigm.
[Id. ¶ 34.] As partial consideration for the
merger, Paradigm agreed to assume $30, 000 of convertible
debt purportedly owed by Zenergy. [Id. ¶ 35.]
Gasich agreed to assign portions of the debt, which the
assignees would then convert into shares to be sold in
connection with a promotional campaign. [Id. ¶
memorialize the supposed convertible debt, Gasich prepared a
backdated convertible note. [Id. ¶ 37.] On May
17, 2009, pursuant to Gasich's request, Defendant Diane
Dalmy sent Gasich a template for a “standard
convertible note.” [Id.] On May 27, 2009,
Gasich returned to Dalmy an executed note that followed
Dalmy's template. [Id.] Days after the share
exchange agreement was signed, Gasich assigned portions of
the convertible debt to his family and friends, promoters,
associates of Paradigm, and Dalmy, all of whom immediately
exercised the option to convert the debt into shares of
Paradigm stock. [Id. ¶ 39.] From June 19 to 23,
2009, Paradigm-Zenergy's predecessor entity-issued 300
million shares to Gasich's assignees. [Id.
¶ 40.] Wilding, through his company Skyline Capital,
received 38 million shares. [Id.] The Zenergy stock
received by Gasich's assignees was designated as
restricted and could not be freely sold to the public.
[Id. ¶ 134.] To get the restriction removed,
Dalmy prepared and submitted to transfer agents numerous
attorney opinion letters that falsely represented that the
assignees' Zenergy stock, including her own shares, could
be reissued and sold without restriction pursuant to Rule 144
under the Securities Act. [Id. ¶¶ 137-54.]
June 2009 to August 2009, Zenergy and Paradigm issued a
number of press releases designed to generate interest in
Zenergy securities. [Id. ¶ 47.] These press
releases were initiated by Gasich, who reviewed, edited,
approved, and distributed them. [Id. ¶ 48.]
Luiten also reviewed and approved all or nearly all of the
press releases. [Id.] In several of these press
releases, Gasich and Luiten misrepresented or omitted
material facts about Zenergy. [Id. ¶ 49.]
early September 2009, OTC Markets (formerly Pink OTC Markets
Group, Inc.) identified Zenergy's securities with a
caveat emptor label and blocked quotations of Zenergy until
Zenergy submitted a disclosure statement containing
information about its ownership, operations, and financial
condition. [Id. ¶ 81.] On or about September
15, 2009, Zenergy posted to the OTC Markets website an
information and disclosure statement (the
“Statement”). [Id. ¶ 82.] The
Statement was drafted, reviewed, and approved by Luiten and
Gasich. [Id. ¶ 83.] Zenergy's Statement
contained numerous misstatements and omissions. [Id.
¶ 84.] Among other things, the Statement misrepresented
or omitted to disclose material information about the control
of Zenergy, as well as its operations and assets. Because the
Statement did not contain any financial statements, OTC
Markets refused to change or remove the caveat emptor label.
Accordingly, on or about October 21, 2009, Zenergy posted
financial statements dated September 30, 2009 as a supplement
to the Statement. [Id. ¶ 92.] These financial
statements were prepared and approved by Gasich and Luiten.
[Id. ¶ 93.] The financial statements, however,
contained several materially false statements and omissions
designed to give Zenergy the appearance of legitimacy.
[Id. ¶¶ 94, 95.] After the financial
statements were posted on the OTC Markets website, OTC
Markets removed the caveat emptor label and replaced it with
a “limited information” emblem. [Id.
the removal of the caveat emptor label, Gasich and Luiten
caused Zenergy to issue another series releases designed to
inflate the price of Zenergy's stock. Gasich also
coordinated waves of touting activity in connection with
Zenergy's press releases. Wilding retained a number of
touters, including Ronald Martino, to publicly promote
Zenergy in emails, on message boards, and newsletters.
total, the Gasich assignees and their transferees obtained
trading profits of approximately $4.4 million of their sales
of the assigned shares into the public market. [Id.
¶ 155.] No registration statement was filed or in effect
for any of the transactions during the relevant time period.
As detailed below, the Settling Defendants, Martino, and
Dalmy profited from this illegal scheme.
THE SEC'S REQUEST FOR RELIEF
Disgorgement and ...