Bass, Berry & Sims attorney Chris Lazarini analyzed the case of SEC vs. Abdallah in which the United States, after filing criminal charges against Abdallah and others who allegedly bilked investors out of more than $20 million in an oil and gas Ponzi scheme, sought to intervene and obtain a stay of the SEC's civil Enforcement Action against the same parties until the criminal proceedings concluded. The court found the interests of justice warranted intervention in the Enforcement Action, but it limited the stay to a period of 90 days and allowed the SEC and the court-appointed Trustee to continue their discovery efforts. Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
SEC vs. Abdallah, No. 1:14-CV-1155 (N.D. Ohio, 2/2/16)
* Intervention may be allowed where the moving party files a timely motion and shows a claim or defense having a common question of law or fact with the main action.
** Courts may stay civil proceedings, postpone civil discovery, or impose other conditions on civil proceedings to avoid interfering with parallel criminal proceedings where the interests of justice seem to require it.
In May 2014, the SEC commenced this Enforcement Action, alleging that Defendants bilked investors out of more than $20 million in an oil and gas Ponzi scheme. A criminal indictment followed, and the United States sought to intervene in the Enforcement Action and request a stay of the proceeding pending completion of the criminal case.
Exercising its discretion, the Court grants the requests, but limits the duration of the stay and allows the SEC and court-appointed Receiver to continue pursuing discovery. The Court first examines each factor set out by the Sixth Circuit for permissive intervention under FRCP 24(b). The Court finds the motion timely, as it was filed thirteen days after the criminal indictment issued and during the initial stages of the Enforcement Action. Next, the Court finds common questions of law and fact exist, because the criminal prosecution and Enforcement Action relate to the same conduct. Finally, the Court finds no undue prejudice to any party and concludes that the Defendants' burden will be reduced if they need not defend two actions on the same claims.
Next, the Court grants, in part, the stay request. Noting that there is no precise test in the Sixth Circuit for determining when a stay is appropriate, the Court finds the majority of the factors commonly considered favor granting the stay. First, the Court reiterates that the subject matter of the civil and criminal actions is virtually identical and involves common questions of law and fact. Second, the Court notes that the criminal action is already underway, all but one of the individual defendants have been indicted, and the public's interest in effective criminal prosecution generally outweighs any existing civil interests. Third, the Court finds that the criminal defendants may benefit from first defending the criminal charges, because doing so would eliminate the risk of undermining their Fifth Amendment rights in the civil action and expanding discovery in the criminal case beyond its permissible limits. Finally, the Court finds that the stay will not interfere with its docket and concludes that resolution of the criminal proceedings might expedite the resolution of the Enforcement Action, saving judicial time and resources. The Court declines to impose a complete stay on the Enforcement Action; instead, it limits the stay to ninety days, after which it will review the matter. The Court also allows the SEC to continue all efforts to identify, locate, and recover Defendants' assets and to account for expenditures and transfers of funds, and allows the Receiver to exercise all powers and duties granted it upon appointment.
Neither the SEC nor Defendants opposed the motion.