[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

Nos. 13-10341, 13-10342, 13-10464

________________________

D.C. Docket No. 0:07-cv-61693-JAL

SECURITIES AND EXCHANGE COMMISSION, 

 Plaintiff - Appellee,

 

versus

JOSEPH J. MONTEROSSO, 

LUIS VARGAS, 

LAWRENCE E. LYNCH,

 Defendants - Appellants, 

 

GLOBETEL COMMUNICATIONS CORP., et al.,

 Consolidated Defendants.

________________________

Appeal from the United States District Court

for the Southern District of Florida

________________________

(June 30, 2014)

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2

Before PRYOR, JORDAN, and FAY, Circuit Judges.

PER CURIAM:

This court issued an unpublished opinion in this case on March 3, 2014. 

Appellee, the Securities and Exchange Commission, subsequently moved to 

publish the opinion. Appellee’s motion is GRANTED. We vacate our prior,

unpublished opinion and substitute the following opinion for publication.

 

Joseph J. Monterosso, Luis Vargas, and Lawrence E. Lynch appeal summary 

judgment for the Securities and Exchange Commission (“SEC”) and the remedies

and penalties imposed for their participation in a fraudulent revenue scheme. We 

affirm.

I. BACKGROUND

A. Formation and Operation of GlobeTel Communications Corp.

This case involves the SEC’s investigation into a fraudulent scheme to 

generate fictitious revenue for a Florida-based, publicly traded, 

telecommunications (“telecom”) company formerly known as GlobeTel 

Communications Corp. (“GlobeTel”). Timothy Huff was GlobeTel’s chief 

executive officer (“CEO”), Thomas Jimenez served as GlobeTel’s chief financial 

officer (“CFO”) until March 2006, and Lynch was GlobeTel’s chief operating 

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officer (“COO”) from August 2004 until March 2006 and CFO from March to 

October 2006. Monterosso managed GlobeTel’s wholesale telecom business from 

June 2004 to September 2006, served as president until July 2006 for one of 

GlobeTel’s subsidiaries, Centerline Communications (“Centerline”), and served as 

GlobeTel’s COO from July 2006 to May 2007. Monterosso directly reported to 

GlobeTel’s CEO.

Vargas was the vice president of Centerline and the owner of another 

telecom company, Carrier Services, Inc. (“CSI”). Vargas assisted Monterosso in 

running GlobeTel’s wholesale telecom business; he was also responsible for CSI’s 

accounting and for preparing and forwarding CSI’s and Centerline’s sales 

documentation to GlobeTel.

In June 2004, Huff and Monterosso negotiated a joint venture agreement 

between GlobeTel and CSI, in which CSI would generate $25 million in revenue 

for Centerline in exchange for 5 million shares of GlobeTel stock. Pursuant to the 

agreement, neither CSI nor Monterosso would receive payment unless Centerline 

generated $25 million in revenue. Monterosso thereafter ran GlobeTel’s wholesale 

telecom business and negotiated agreements on behalf of GlobeTel and its 

subsidiaries, Centerline, Volta Communications (“Volta”), and Lonestar 

Communications (“Lonestar”).

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B. The Fictitious “Off-Net” Revenue Scheme

1. Origin and Operation

Between 2004 and 2006, GlobeTel filed periodic reports describing its 

wholesale telecom business as buying and selling “large blocks of calling minutes 

with particular origination and termination points.” R5–475 at 3.

1 As a wholesale 

telecom company, GlobeTel would generate revenue by connecting individual 

callers with the locations they wished to call, and the calls were routed through 

GlobeTel’s “switch.”2

 R3–313 at 3. Telecom companies pay by the minute for the 

right to route calls through the switches to other companies’ networks. The 

switches then create call detail records (“CDRs”) that register information 

regarding the traffic routed through them. GlobeTel’s revenue depended upon the 

call traffic routed through the switch, as measured by the CDRs.

In 2004, in an effort to enhance GlobeTel’s reported revenue, the “off-net” 

program was implemented. The term “off-net” referred to telecom traffic run on a 

switch neither owned nor operated by GlobeTel, Volta, Lonestar, or Centerline. 

R5–475 at 5. In essence, the “off-net” program was a scheme that involved 

creating false invoices to reflect alleged transactions between GlobeTel’s 

 1 These periodic reports were filed with the SEC, as required pursuant to the Securities 

Exchange Act of 1934. 2 A “switch” is a device that routes calls and creates a temporary circuit or 

communication path to connect a caller to the recipient of that call.

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subsidiaries and other companies. Each quarter, a GlobeTel executive would tell 

Monterosso an amount of revenue needed for that quarter. To meet the requested 

revenue, Monterosso and Vargas would receive invoices and CDRs from other 

companies and would change the name to reflect sales to and from GlobeTel’s 

subsidiaries. Starting in 2004, Ronald Hay, the owner of Mercury Telecom 

(“Mercury”) and World Communications Carrier Services (“WCCS”), began 

providing Monterosso and Vargas with WCCS invoices and CDRs. These WCCS 

invoices and CDRs were provided to Monterosso as part of a legitimate business 

arrangement Hay had with Monterosso. Upon receipt of the invoices, Vargas 

would change the names on the invoices to show sales from Volta to Mercury and 

purchases from WCCS to Volta. Despite what the invoices showed, Volta never 

sold anything to, or bought anything from, WCCS or Mercury.3

On December 27, 2004, Monterosso sent an email to John Petuoglu, one of 

Hay’s employees, requesting “additional revenue” before the end of the year. In 

this email, Monterosso listed the December invoices he already had received and 

requested a specific amount be added to each one. After this request, Hay did not 

provide Monterosso and Vargas with any additional invoices. Monterosso and 

Vargas subsequently submitted the WCCS-to-Volta and the Volta-to-Mercury 

 3 Apparently, Volta was never operational and did not have its own customers.

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invoices to GlobeTel’s accounting department. The invoices matched the real 

invoices but the customer name had been changed to Volta, and the amounts had 

been increased.

After Hay stopped providing invoices, Monterosso and Vargas started 

receiving CDRs from Chuck Leblo, and would use the data from these CDRs to 

create invoices on WCCS letterhead. Leblo had no connection to Hay’s 

companies, and there was no authorization from Mercury or WCCS to create these 

invoices. Vargas used Leblo’s CDRs to create invoices showing sales of minutes 

from WCCS to Volta and sales of minutes by Volta to Mercury. Vargas would 

then submit the invoices and CDRs to GlobeTel.

Leblo’s CDRs and invoices also were used to manufacture revenue for 

Lonestar. In 2004 and early 2005, Monterosso and Vargas obtained CDRs and 

invoices purporting to show Lonestar had purchased minutes from Leblo’s 

company XSTEL and had sold minutes to Leblo’s company Telmetriks. Even 

after Leblo stopped providing invoices in 2005 and sent only CDRs, Vargas 

prepared XSTEL-to-Lonestar and Lonestar-to-Telmetriks invoices using Leblo’s 

CDRs. Lonestar actually never transacted with XSTEL or Telmetriks.

GlobeTel also reported “off-net” revenue for Centerline from Vargas’s 

company, CSI. Centerline, however, never bought from nor sold anything to CSI 

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as part of the “off-net” program. From September 2004 to March 2006, 

Monterosso and Vargas created and submitted invoices showing Centerline and 

CSI were purchasing minutes from, and selling minutes to, each other.

4

2. Continuation of the Scheme and GlobeTel’s Knowledge

At Monterosso’s direction, Vargas submitted the phony manufactured

invoices reflecting the “off-net” business of Volta, Lonestar, and Centerline, to 

GlobeTel’s accounting department. GlobeTel recorded revenue, costs of goods,

and expenses from Centerline and its subsidiaries by making entries in its general 

ledger. Lynch, as GlobeTel’s COO from August 2004 to March 2006 and CFO

from March 2006 to October 2006, and Jimenez, as GlobeTel’s CFO until March 

2006, were responsible for recording the “off-net” revenue. Lynch told Jimenez he 

always had believed the “off-net” revenue was “fake.” R5–475 at 13. 

Additionally, on January 12, 2005, Vargas accidentally sent Lynch an invoice from 

WCCS to another unrelated telecom company, and the following day, Lynch 

requested a “new one.” R5–475 at 12.

In April 2005, Lynch asked Monterosso to provide an extra $1.6 million in 

revenue for the first quarter of the year. Monterosso then contacted Leblo to ask 

whether he had “any additional revenue . . . that GlobeTel could utilize.” R5–475 

 4 Monterosso and Vargas initially obtained those invoices from Leblo, but once Leblo 

stopped providing invoices, Vargas used Leblo’s CDRs to generate the CSI-Centerline invoices.

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at 12. Vargas also emailed Leblo the precise amount of revenue needed for each 

GlobeTel subsidiary over particular time periods within the quarter. After sending 

the email requesting the particular amount, on May 2, 2005, Vargas sent Leblo 

another email stating the additional $1.6 million was “need[ed] . . . within the next 

couple of days.” R–314–28 at 79 (Ex. 161). That same day, GlobeTel recorded 

the approximate $1.6 million in revenue in its general ledger.

In 2004 and 2005, the fraudulent “off-net” revenue accounted for 

approximately 58% and 87.4% of GlobeTel’s revenue, respectively; and for the 

first quarter of 2006, it accounted for approximately 92%. Because of the fictitious 

“off-net” revenue, from October 2004 through June 2006, GlobeTel’s financial 

statements misstated the company’s revenue by more than $100 million. These 

misstatements were consequently made a part of GlobeTel’s periodic reports, 

securities registration statements, and press releases.

C. SEC Investigations and Proceedings Below

In November 2007, the SEC filed a complaint against Monterosso and 

Vargas and alleged multiple violations of the Securities Act of 1933 (“Securities 

Act”)5 and the Securities Exchange Act of 1934 (“Exchange Act”).

6

 In a separate 

action, in May 2008, the SEC filed a complaint against GlobeTel, Lynch, Huff, and 

 5 15 U.S.C. §§ 77a–77aa.

6 15 U.S.C. §§ 78a–78mm.

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Jimenez. Lynch settled with the SEC on liability, but the civil penalties 

determination was left for a later date. Huff consented to judgment on both 

liability and remedies. The cases were consolidated in November 2008. In June

2009, the SEC filed the operative second amended combined complaint 

incorporating its allegations against all defendants.7

 As to Monterosso and Vargas, 

the SEC alleged: (1) violations of section 17(a) of the Securities Act;

8 (2) 

violations of section 10(b) of the Exchange Act9 and Rule 10b–5;

10 (3) aiding or 

abetting violations of section 10(b) and Rule 10b–5; (4) aiding or abetting 

violations of section 13(a) of the Exchange Act11 and Rules 12b–20, 13a–1, and 

13a–13;

12 (5) aiding and abetting violations of section 13(b)(2)(A) of the Exchange 

Act;

13 and (6) violations of Rules 13b2–1 and 13b2–2.14

During their depositions, Vargas and Lynch invoked their Fifth Amendment 

privilege against self-incrimination and refused to answer substantive questions. 

The SEC requested an adverse inference be drawn against them. While the district 

judge conditionally granted the request, she declined to draw inferences as to each 

 7 Upon consent, the district judge entered judgment against Jimenez and GlobeTel.

8 15 U.S.C. § 77q(a).

9 15 U.S.C. § 78j(b).

10 17 C.F.R. § 240.10b–5.

11 15 U.S.C. § 78m(a).

12 17 C.F.R. §§ 240.12b–20, 240.13a–1, 240.13a–13.

13 15 U.S.C. § 78m(b)(2)(A).

14 17 C.F.R. §§ 240.13b2–1, 240.13b2–2.

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of the unanswered questions and noted she would “address each inference sought 

as it comes up.” R5–464 at 18.

In March 2011, the district judge granted summary judgment in favor of the 

SEC against Monterosso and Vargas and found (1) they were liable for violating 

the antifraud provisions of the Securities Act and the Exchange Act;15 (2) 

alternatively, they were secondarily liable for aiding and abetting GlobeTel’s 

violations of the antifraud provisions; (3) they were liable for aiding and abetting 

GlobeTel’s violations of section 13(a) and 13(b)(2)(A) and Rules 12b–20, 13a–1, 

and 13a–13; and (4) they were liable for violating Rules 13b2–1 and 13b2–2.

The district judge thereafter entered an order adopting the magistrate judge’s 

report and recommendation to impose officer-and-director bars, order 

disgorgement plus prejudgment interest, and assess civil penalties (“remedies 

order”). The district judge held Monterosso and Vargas jointly and severally liable 

for disgorgement of $675,000, plus prejudgment interest, and assessed civil 

penalties of $300,000 against Monterosso, and $150,000 against Vargas. Lynch, 

having settled with the SEC on liability, was ordered to pay $780,000 in civil 

penalties. The judge rejected Lynch’s arguments regarding his minimal 

involvement in the fraudulent scheme and disproportionate treatment and found his 

 15 Section 17(a)(1), section 10(b), and Rule 10b–5(a).

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“claim that his involvement in the subject fraud was minimal and unknowing is 

contradicted not only by the record but by his own consent to entry of judgment.” 

R6–554 at 16. The judge determined the magistrate judge’s recommended 

amounts were warranted in light of the “egregiousness” of the violations and the 

parties’ respective abilities to pay. R6–554 at 13–15, 16–17. The judge also

enjoined Monterosso and Vargas from future violations of securities laws and 

imposed officer-and-director bars against them.

II. DISCUSSION

Although appellants raise a number of issues, our principal concern is 

Monterosso and Vargas’s appeal of the district judge’s granting of summary 

judgment and Monterosso, Vargas, and Lynch’s appeal of the remedies order.

16

A. Antifraud Violations

Monterosso and Vargas challenge the summary judgment on the SEC’s 

antifraud claims. They contend there was no evidence they were liable for the 

antifraud violations, and there was a genuine issue of material fact as to whether 

they acted with scienter. We review a district judge’s order granting summary 

judgment de novo and apply the same legal standards. Capone v. Aetna Life Ins. 

 16 We find the other arguments raised on appeal are meritless and do not warrant further 

discussion, because (1) the second amended combined complaint was pled with sufficient 

particularity as to each defendant; and (2) the district judge acted within her discretion in striking 

the portion of Monterosso’s answer that contradicted his previous admissions, see Krinsk v. 

SunTrust Banks, Inc., 654 F.3d 1194, 1202 (11th Cir. 2011).

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Co., 592 F.3d 1189, 1194 (11th Cir. 2010). In conducting our analysis, we 

construe the facts and draw all reasonable inferences in the light most favorable to 

the non-moving party. Burger King Corp. v. E-Z Eating, 41 Corp., 572 F.3d 1306, 

1312–13 (11th Cir. 2009). Summary judgment is appropriate “if the movant shows 

that there is no genuine dispute as to any material fact and the movant is entitled to 

judgment as a matter of law.” Fed. R. Civ. P. 56(a). Speculation or conjecture 

cannot create a genuine issue of material fact, and a “mere scintilla of evidence” in 

support of the nonmoving party cannot overcome a motion for summary judgment. 

Young v. City of Palm Bay, 358 F.3d 859, 860 (11th Cir. 2004).

Section 10(b) of the Exchange Act provides:

It shall be unlawful for any person, directly or indirectly, by the 

use of any means or instrumentality of interstate commerce or of the 

mails, or of any facility of any national securities exchange . . . [t]o 

use or employ, in connection with the purchase or sale of any security 

registered on a national securities exchange or any security not so 

registered, . . . any manipulative or deceptive device or contrivance in 

contravention of such rules and regulations as the Commission may 

prescribe as necessary or appropriate in the public interest or for the 

protection of investors.

15 U.S.C. § 78j. Rule 10b–5, which implements section 10(b), provides it is 

unlawful “[t]o employ any device, scheme, or artifice to defraud.” 17 C.F.R. § 

240.10b–5(a). It also is unlawful “[t]o make any untrue statement of a material 

fact” or to omit “a material fact necessary in order to make the statements made, in 

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the light of the circumstances under which they were made, not misleading.” 17 

C.F.R. § 240.10b–5(b).

In order to establish a section 10(b) or Rule 10b–5 violation, the SEC must 

prove (1) a material misrepresentation or materially misleading omission; (2) in 

connection with the purchase or sale of securities; (3) made with scienter. SEC v. 

Merch. Capital, LLC, 483 F.3d 747, 766 (11th Cir. 2007) (citing Aaron v. SEC, 

446 U.S. 680, 695 (1980)). Section 17(a) of the Securities Act,

17 requires 

substantially similar proof, and “[t]o show a violation of section 17(a)(1), the SEC 

must prove (1) material misrepresentations or materially misleading omissions, (2) 

in the offer or sale of securities, (3) made with scienter.” Id. (citing Aaron, 446 

U.S. at 697). To show a violation of section 17(a)(2) or 17(a)(3), the SEC need 

only demonstrate (1) material misrepresentations or materially misleading 

omissions, (2) in the offer or sale of securities, (3) made with negligence. Id.

(citing Aaron, 446 U.S. at 702).

With the exception of the scienter element, little discussion is warranted

regarding the elements of the antifraud violations because there is simply no doubt

as to whether GlobeTel issued misrepresentations or false statements concerning 

its revenue figures and whether those statements were issued in connection with 

 17 15 U.S.C. § 77q(a).

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the offer, purchase, or sale of securities. As appellants admit, from October 2004 

through June 2006, GlobeTel’s financial statements misstated the company’s 

revenue by more than $100 million, and GlobeTel incorporated those 

misstatements into numerous periodic reports, securities registration statements, 

and press releases.

Monterosso and Vargas argue they did not “make” those false statements 

and contend under Janus Capital Group, Inc. v. First Derivative Traders, 131 S. 

Ct. 2296 (2011), they cannot be liable. Janus addressed the scope of Rule 10b–

5(b) and the language providing it is unlawful to “‘make any untrue statement of a 

material fact’ in connection with the purchase or sale of securities.” Janus, 131 S. 

Ct. at 2301 (quoting 17 C.F.R. § 240.10b–5). The Court concluded that “[f]or 

purposes of Rule 10b–5, the maker of a statement is the person or entity with 

ultimate authority over the statement, including its content and whether and how to 

communicate it.” Id. at 2302. The Court consequently held a mutual-fundinvestment advisor who had been involved in preparing prospectuses for a client 

did not “make” the statement contained therein for purposes of Rule 10b–5(b). Id.

at 2305. 

While Janus addressed misstatement claims under Rule 10b–5(b), 

Monterosso and Vargas are liable under section 17(a), section 10(b), and Rule 

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10b–5, because they made “deceptive contributions to an overall fraudulent 

scheme.” R5–475 at 44. Janus only discussed what it means to “make” a 

statement for purposes of Rule 10b–5(b), and did not concern section 17(a)(1) or 

(3) or Rule 10b–5(a) or (c). See Janus, 131 S. Ct. at 2299–302. The operative 

language of section 17(a) does not require a defendant to “make” a statement in 

order to be liable. See 15 U.S.C. § 77q. Likewise, subsections (a) and (c) of Rule 

10b–5 “are not so restricted” as subsection (b), because they are not limited to “the 

making of an untrue statement of a material fact.” Affiliated Ute Citizens of Utah 

v. United States, 406 U.S. 128, 152–53 (1972). The case against Monterosso and 

Vargas did not rely on their “making” false statements, but instead concerned their 

commission of deceptive acts as part of a scheme to generate fictitious revenue for 

GlobeTel. Therefore, Janus has no bearing on this case.18

Monterosso and Vargas’s primary contention on appeal is that summary 

judgment was precluded under section 10(b) and section 17(a)(1), because they did 

not intend to deceive, manipulate, or defraud.

Scienter may be established by a showing of knowing 

misconduct or severe recklessness. . . . . Proof of recklessness [ ]

 18 In their motions opposing summary judgment, Monterosso and Vargas failed to raise 

the argument that the district judge should have distinguished between Rule 10b–5(a) and (c) and 

Rule 10b–5(b) violations, and we will not consider an argument on appeal not raised with the 

district judge. See, e.g., Fed. Deposit Ins. Corp. v. 232, Inc., 920 F.2d 815, 817 (11th Cir. 1991)

(per curiam) (“[A]n appellate court generally will refuse to consider an issue not presented to the 

trial court and raised for the first time on appeal.”).

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require[s] a showing that the defendant’s conduct was an extreme 

departure of the standards of ordinary care, which presents a danger of 

misleading buyers or sellers that is either known to the defendant or is 

so obvious that the actor must have been aware of it.

SEC v. Carriba Air, Inc., 681 F.2d 1318, 1324 (11th Cir. 1982) (citation and 

alterations omitted). While scienter is an issue ordinarily left to a trier of fact, 

there are cases in which summary judgment may be appropriate. See, e.g., SEC v. 

Ficken, 546 F.3d 45, 51–52 (1st Cir. 2008); SEC v. Lyttle, 538 F.3d 601, 603-04 

(7th Cir. 2008) (finding summary judgment was appropriate because without 

testimony to contradict the SEC’s circumstantial evidence of the defendants’ 

beliefs and state of mind, “no reasonable jury could doubt that they had acted with 

scienter”); In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113 (9th Cir. 1989). 

Scienter can be established through circumstantial or direct evidence. SEC v. 

Ginsburg, 362 F.3d 1292, 1298 (11th Cir. 2004).

Monterosso and Vargas attempt to claim ignorance and argue they were 

under the impression that GlobeTel management had approved the “off-net”

program. Despite this alleged declaration of management assurance, however, 

Monterosso and Vargas cannot point to a genuine issue of material fact to 

demonstrate that a reasonable jury could doubt they acted with scienter. 

Monterosso and Vargas cannot plausibly argue they believed GlobeTel could 

report revenue from switches neither owned nor leased by GlobeTel or its 

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subsidiaries. As the district judge explained, “the concept is akin to Verizon 

recording revenue from telecom traffic run by AT&T.” R5–475 at 38. And after

submitting fictitiously manufactured invoices and unrelated CDRs to GlobeTel’s 

accounting department, Monterosso and Vargas cannot plead ignorance of the fact

that such reported revenue was illegitimate. See Lyttle, 538 F.3d at 603–04. Their 

defense that GlobeTel’s executives were fully aware of the program and the nature 

of the invoices does not negate scienter, because “[o]ne doesn’t have to be the 

inventor of a lie to be responsible for knowingly repeating it.” See id. at 604. 

In order to corroborate Volta’s fraudulent “off-net” invoices, Vargas would 

obtain and submit CDRs from Leblo, who had no connection to the companies that 

allegedly transacted business with Volta. Monterosso knew the fraudulent “offnet” invoices would be entered in the company’s ledger, and Vargas knew the 

Volta-to-Mercury invoice would be recognized as Volta revenue. Monterosso and 

Vargas changed the names of customers and vendors and altered the amounts on 

invoices, and no reasonable person could have believed it was proper to report 

revenue from fabricated invoices. They also submitted invoices and CDRs 

suggesting transactions between GlobeTel’s subsidiaries and Hay’s and Leblo’s 

companies, yet never sent Hay or Leblo invoices showing the transactions. Nor 

did they pay any purported vendors for the “off-net” traffic. 

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Moreover, Monterosso and Vargas were asked to reverse-engineer an everincreasing amount of revenue. Most notably, in April 2005, Monterosso and 

Vargas were involved in producing an “additional” $1.6 million in revenue for the 

previous quarter. Lynch spoke with Monterosso and requested the additional

revenue, and Monterosso then contacted Leblo to find out if he could provide the

revenue. Vargas sent Leblo an email (with a copy to Monterosso) that attached a 

spreadsheet delineating the sources and amounts of the additional $1.6 million 

requested and allocating the amounts among GlobeTel’s subsidiaries. According 

to the invoices submitted by Monterosso and Vargas, Volta only did business with 

Hay’s companies. Consequently, by asking Leblo, someone who had no 

connection to Hay or his companies, to provide additional revenue for Volta, 

Monterosso and Vargas clearly knew the CDRs and invoices did not correspond to 

actual telecom traffic.

The evidence of Monterosso and Vargas’s actions in GlobeTel’s fraudulent 

scheme is overwhelming.19 No reasonable jury could conclude Monterosso and 

Vargas were not conscious of the obvious risk that the fabricated invoices they 

were submitting misrepresented revenue and that by submitting those invoices and 

 19 As to Vargas, we note the evidence of scienter is reinforced by the adverse inference 

from his invocation of the Fifth Amendment privilege at his deposition. See Lyttle, 538 F.3d at 

604; United States v. Two Parcels of Real Prop. Located in Russell Cnty., Ala., 92 F.3d 1123, 

1129 (11th Cir. 1996) (per curiam) (recognizing, in civil actions, an adverse inference can be 

drawn when a party refuses to testify on Fifth Amendment grounds).

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CDRs the accountants would rely on them to make entries in GlobeTel’s general 

ledger. Monterosso and Vargas’s actions in reverse-engineering revenue 

demonstrated, at the very least, proof of severe recklessness. Therefore, we agree 

with the district judge’s conclusions and find no genuine issue of material fact as to 

scienter.

20

B. Recordkeeping and Reporting Violations

Monterosso and Vargas also raise challenges to the district judge’s granting

summary judgment for the recordkeeping and reporting violations. First, 

Monterosso and Vargas contend they were not liable for violating Rule 13b2–1,21

because they were not responsible for making entries in GlobeTel’s books and 

records. Rule 13b2–1 prohibits directly or indirectly falsifying or causing to be 

falsified any book, record, or account subject to section 13(b)(2)(A) of the 

Exchange Act. Section 13(b)(2)(A) requires companies to “make and keep books, 

records, and accounts, which, in reasonable detail, accurately and fairly reflect the 

transactions and dispositions of the assets of the issuer.” 15 U.S.C. § 

 20 Monterosso and Vargas also challenge the district judge’s alternative finding that they 

would be liable under an aiding and abetting theory. Their arguments, however, again focus on

their alleged lack of knowledge and awareness. As discussed above, the evidence was simply 

beyond question that they knowingly and actively participated in the scheme by fabricating 

invoices and submitting them to GlobeTel; therefore, their arguments as to aiding and abetting

also fail. See SEC v. Goble, 682 F.3d 934, 947 (11th Cir. 2012) (recognizing to establish aiding 

and abetting liability under the securities laws, the SEC must show (1) a primary violation; (2) 

the aider and abettor had knowledge of the primary violation; and (3) the aider and abettor 

provided substantial assistance in the commission of the primary violation). 21 17 C.F.R. § 240.13b2–1.

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78m(b)(2)(A). While Monterosso and Vargas were not the ones who made the 

entries in GlobeTel’s books and records, there was no genuine issue of material 

fact that they created the fake invoices and CDRs and transmitted those documents 

to GlobeTel. As a result of Monterosso and Vargas’s actions, GlobeTel’s books, 

records, and accounts were falsified and the district judge did not err in holding 

them liable for violating Rule 13b2–1.

Vargas also argues Rule 13b2–2 does not apply to him because he was not 

an officer or a director of GlobeTel until late 2006. Rule 13b2-2, however,

prohibits a director or officer, “or any other person acting under the direction 

thereof,” from misleading an accountant engaged in the audit or review of 

documents or reports required to be filed with the SEC. 17 C.F.R. § 240.13b2–

2(b)(1). An “officer” includes a “president [or] . . . any person routinely 

performing corresponding functions.” 17 C.F.R. § 240.3b–2. Because Monterosso 

was Centerline’s president and Vargas was “acting under the direction” of 

Monterosso when he created and submitted the fraudulent GlobeTel invoices and 

CDRs, we find his argument to be unavailing.

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C. Remedies

Monterosso and Vargas challenge different aspects of the district judge’s 

disgorgement order, and all three appellants attack the district judge’s imposition 

of civil penalties on several grounds.

1. Disgorgement

Disgorgement is an equitable remedy intended to prevent unjust enrichment. 

SEC v. Yun, 327 F.3d 1263, 1269 n.10 (11th Cir. 2003); CFTC v. Sidoti, 178 F.3d 

1132, 1138 (11th Cir. 1999). In order to be entitled to disgorgement, the SEC 

needs to produce only a reasonable approximation of the defendant’s ill-gotten 

gains, and “[e]xactitude is not a requirement.” SEC v. ETS Payphones, Inc., 408 

F.3d 727, 735 (11th Cir. 2005) (per curiam) (citation and internal quotation marks 

omitted). Once the SEC has produced a reasonable approximation of the 

defendant’s unlawfully acquired assets, the burden shifts to the defendant to 

demonstrate the SEC’s estimate is not reasonable. SEC v. Calvo, 378 F.3d 1211, 

1217 (11th Cir. 2004) (per curiam). We review a district judge’s findings 

regarding the amount of ill-gotten gains to be disgorged for abuse of discretion. 

See id. at 1217–18. 

First, Monterosso contends the district judge erred by imposing the

disgorgement of funds not received in connection with any wrongdoing. We find 

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this claim unpersuasive. While Monterosso maintains he profited by only 

$116,000 from the fraudulent scheme, he ignores the proceeds he received in the 

form of debt-forgiveness and other cash he received. Based on Monterosso’s 

admissions in his deposition and pleadings, the district judge found: (1) 

Monterosso had received between $250,000 and $275,000 in cash compensation 

from GlobeTel for his work under the joint venture agreement; (2) Monterosso had 

received $325,000 in debt forgiveness from GlobeTel; and (3) Monterosso had 

been allowed to keep $100,000 in payments owed to GlobeTel by third parties. 

Because the district judge’s findings are supported by the record, we find no abuse 

of discretion.

Vargas also argues the district judge erred in holding Monterosso and 

Vargas jointly and severally liable for the disgorgement amount. “It is a well 

settled principle that joint and several liability is appropriate in securities laws 

cases where two or more individuals or entities have close relationships in 

engaging in illegal conduct.” Calvo, 378 F.3d at 1215. The district judge found

that “Monterosso and Vargas clearly acted in concert to violate the securities law.” 

R6–554 at 9. Vargas argues it would be inequitable to hold him liable for 

disgorgement when he did not receive proceeds. The Ninth Circuit, however, has

stated, and we agree, “a personal financial benefit” is not “a prerequisite for joint 

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and several liability.” SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1098 

(9th Cir. 2010). Vargas was the sole owner of CSI, and CSI was to receive 5 

million shares from GlobeTel if $25 million in revenue was generated. GlobeTel

paid CSI at least $130,000 for the revenue generated pursuant to the joint 

agreement, and Monterosso admitted CSI paid him and Vargas. Given the close 

relationship between Monterosso and Vargas, and their collaboration in the 

fraudulent scheme, we find it was appropriate to hold them jointly and severally 

liable. See Calvo, 378 F.3d at 1215–16.

2. Civil Penalties

The final arguments raised by the appellants involve the district judge’s 

imposition of civil penalties. Section 20(d) of the Securities Act22 and section 

21(d)(3) of the Exchange Act23 authorize three tiers of monetary penalties for 

statutory violations. The first-tier penalty may be imposed for any violation; a 

second-tier penalty may be imposed if the violation “involved fraud, deceit,

manipulation, or deliberate or reckless disregard of a regulatory requirement”; and 

a third-tier penalty may be imposed when the second-tier requirements are met and 

the “violation directly or indirectly resulted in substantial losses or created a 

significant risk of substantial losses to other persons,” 15 U.S.C. §§ 77t(d)(2), 

 22 15 U.S.C. § 77t(d).

23 15 U.S.C. § 78u(d)(3).

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78u(d)(3)(B). Civil penalties are intended to punish the individual wrongdoer and 

to deter him and others from future securities violations. SEC v. Sargent, 329 F.3d 

34, 41 n.2 (1st Cir. 2003). The statutes leave the amount to be imposed to the 

discretion of the district judge. SEC v. Warren, 534 F.3d 1368, 1369 (11th Cir. 

2008) (per curiam).

Monterosso argues the district judge’s order imposing third-tier penalties 

was inappropriate because there was “no substantial loss to investors,” and there 

was no evidence he made the misstatements. While there was no direct evidence 

of loss, as the magistrate judge found, and the district judge agreed, the fraudulent 

scheme created a substantial risk of loss as the revenue overstatements would have 

been important to any reasonable shareholder.

Monterosso and Vargas argue the amount imposed as a civil penalty

exceeded their ability to pay. “At most, ability to pay is one factor to be 

considered in imposing a penalty.” Warren, 534 F.3d at 1370. First, Monterosso’s

argument that the district judge should have considered his financial condition is 

waived, because he failed to raise this issue below. See Ramirez v. Sec’y, U.S. 

Dep’t of Transp., 686 F.3d 1239, 1249 (11th Cir. 2012). Regarding Vargas, the 

district judge did consider his financial condition and reduced the SEC’s requested 

penalty because of Vargas’s inability to pay; we therefore find that she did not 

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abuse her discretion in imposing the $150,000 penalty. See Warren, 534 F.3d at 

1370 (“[N]othing in the securities laws expressly prohibits a court from imposing 

penalties or disgorgement liability in excess of a violator’s ability to pay.”).

Lynch argues the district judge erred in imposing a $780,000 penalty, which 

was higher in comparison to the penalties imposed upon co-defendants. Lynch 

settled as to liability and “for purposes of [a disgorgement and/or civil penalties] 

motion” accepted the allegations of the SEC’s complaint as true.24 R6–523–1 at 3 

(Ex. A). Lynch therefore stipulated he had made or caused to be made fictitious 

entries for each quarter, he was a participant in the fraudulent scheme, and he had 

acted with scienter in making the fraudulent entries. Therefore, we find no merit to 

his argument the district judge erred in ignoring evidence of “his minimal 

involvement in the fraud.” Lynch Br. at 13, 39–49. 

Lynch also argues the district judge failed to weigh all the evidence before 

imposing the civil fine. It appears from the record, however, the judge did 

examine the evidence thoroughly, and used her discretion in determining the 

magistrate judge’s recommended penalty was appropriate. Finally, Lynch argues 

the district judge imposed a disproportionate penalty compared to the other 

 24 While Lynch makes an argument that the district judge abused her discretion in finding

an adverse inference could be drawn from his invocation of his Fifth Amendment rights, any 

such inference is immaterial because the judge did not draw upon those inferences in assessing 

the civil penalties against Lynch.

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defendants in the case. This argument is unavailing, because Lynch chose not to 

settle with the SEC as to penalties and he had a different role in the scheme than 

his co-defendants. Lynch was responsible for making fraudulent entries in 

GlobeTel’s general ledger and knowingly signed several of the filings that reported 

the fictitious revenue. It was within the district judge’s discretion to evaluate his

involvement and to conclude, based on his activities in the fraudulent scheme, that

the recommended penalty was appropriate. See VanCook v. SEC, 653 F.3d 130, 

143–44 (2d Cir. 2011).

III. CONCLUSION

Concluding the district judge did not err in granting summary judgment in 

favor of the SEC or in ruling on disgorgement and civil penalties, we affirm.

AFFIRMED.

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