Bass, Berry & Sims attorney Chris Lazarini provided insight on a case in which a broker, already engaged with the SEC on another matter, sought injunctive relief following the SEC’s subpoenas and request for information related to additional potential securities law violations. The broker claimed the SEC was attempting to improperly obtain information about him and to harass and harm him in the business community. The court denied the request, affirming that injunctive relief is an extraordinary remedy and will not be issued unless the moving party demonstrates (1) a reasonable likelihood of success on the merits, (2) the denial of injunctive relief will result in irreparable harm, (3) a balancing of the equities favoring the moving party, and (4) the public interest favors injunctive relief.
Chris provided the analysis for Securities Online Litigation Alert (SOLA). 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 SOLA, please visit the SOLA website to sign up for the newsletter.
Gentile vs. SEC, No. 19-5155 (D. N.J., 3/8/19)
Injunctive relief is an extraordinary remedy and will not issue unless the moving party demonstrates (i) a reasonable likelihood of success on the merits, (ii) the denial of injunctive relief will result in irreparable harm, (iii) a balancing of the equities favoring the moving party, and (iv) the public interest favors injunctive relief.
Already engaged with the SEC on one matter, Plaintiff, who owns a Bahamas-based broker-dealer, filed this action seeking to enjoin the SEC from enforcing subpoenas issued in a different matter.
In 2016, the SEC filed a complaint against Plaintiff alleging he was involved in two penny stock manipulation schemes. The Court dismissed the action as time-barred (see SOLA Ref. No. 2018-03-07); the SEC’s appeal to the Third Circuit is pending. In a separate investigation against an entity that held an account at Plaintiff’s broker-dealer, the SEC issued subpoenas to Plaintiff’s personal attorney and another entity seeking testimony and documents related to Plaintiff and his broker-dealer. In its related Litigation Release, the SEC stated it was seeking documents and information about a “foreign-based broker-dealer and its principal” concerning possible securities law violations.
Plaintiff requests a temporary restraining order (“TRO”) and a permanent injunction against the subpoenas, arguing that the SEC is using the separate investigation to circumvent the dismissal of the penny stock claims. The SEC, he alleges, is attempting to improperly obtain information about him and his broker-dealer and to otherwise harass and harm him in the business community. In support, Plaintiff argued that six financial institutions had terminated their relationships with Plaintiff or his businesses, because of the SEC’s Litigation Release and investigation efforts and suggested more will do so if injunctive relief is not granted.
Denying the request for a TRO, the Court notes the extraordinary nature of the injunctive relief sought and finds Plaintiff failed to make a clear showing of immediate, irreparable injury absent granting of the TRO. The Court finds the termination of business relationships a past harm that may be redressed by monetary damages. On the prospect of Plaintiff losing additional business, the Court finds the allegations speculative and, again, notes that any loss of business is a harm which may be cured by money damages. Because Plaintiff failed to demonstrate immediate, irreparable harm, the Court finds no reason to address the other factors involved in determining whether a TRO should issue; reasonable likelihood of success on the merits, balancing of the equities, and the public interest. Finally, the Court directs the parties to submit their briefs in the preliminary injunction on an expedited schedule.