Court Opinion

ID: 2652893
Source: CourtListenerOpinion
Date Created: 2014-02-12 01:00:58.341686+00
Date Added: 2024-06-11T09:10:58.466604
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 13-1757

SECURITIES AND EXCHANGE COMMISSION,

                 Plaintiff – Appellee,

          v.

LEE BENTLEY FARKAS,

                 Defendant - Appellant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.     Leonie M. Brinkema,
District Judge. (1:10-cv-00667-LMB-TRJ)

Submitted:   January 31, 2014             Decided:   February 11, 2014

Before MOTZ, DAVIS, and WYNN, Circuit Judges.

Affirmed by unpublished per curiam opinion.

Lee Bentley Farkas, Appellant Pro Se. Catherine Anne Broderick,
David Lisitza, UNITED STATES SECURITIES & EXCHANGE COMMISSION,
Washington, D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

              Lee Bentley Farkas was convicted in 2011 of one count

of conspiracy to commit bank, wire, and securities fraud; six

counts   of     bank       fraud;     four     counts     of     wire     fraud;     and    three

counts     of    securities          fraud.            Concomitant        to   his     criminal

prosecution,         the        Securities     and      Exchange         Commission     (“SEC”)

filed a civil enforcement action alleging that Farkas violated

the Securities Act of 1933, see 15 U.S.C. § 77q(a) (2012), the

Securities       Exchange          Act    of   1934,      see       15    U.S.C.     §§ 78j(b),

78m(b)(2), (b)(5) (2012), and the Exchange Act Rules, see 17

C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-

13, 240.13b2-1 (2013).                   The SEC sought, among other relief, a

permanent       injunction          barring       Farkas       from       committing       future

violations of the securities laws and an order prohibiting him

from   acting        as     officer       or   director        of    a    company     that   had

registered securities or was required to make financial reports

to the SEC, or from serving in a senior management or control

position        at        any     mortgage-related             company         or     financial

institution or holding a position involving financial reporting

at a public company.

              The      court       stayed        the     civil       action       pending     the

resolution       of       Farkas’        criminal        case.           Following      Farkas’

unsuccessful direct appeal of his conviction and sentence, see

United   States        v.       Farkas,    474    F.     App’x      349    (4th     Cir.    2012)

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(unpublished), the SEC moved for summary judgment in the civil

action, arguing that, under the doctrine of collateral estoppel,

Farkas’ conviction conclusively established his violation of the

securities      laws     and    provided     undisputed      facts     sufficient   to

support   the     imposition        of     the   requested    injunctive      relief.

Following a response from Farkas, in which he raised certain

challenges to the application of collateral estoppel, the court

concluded    that      collateral         estoppel   was   appropriate,       granted

summary judgment as to all claims, and imposed all requested

injunctive relief.         Farkas appeals this order.

                                            I.

            Farkas       first    raises     two   challenges     to    the   district

court’s   collateral           estoppel     analysis.        To   apply   collateral

estoppel, a party must show that

       (1) the issue or fact is identical to the one
       previously litigated; (2) the issue or fact was
       actually resolved in the prior proceeding; (3) the
       issue or fact was critical and necessary to the
       judgment in the prior proceeding; (4) the judgment in
       the prior proceeding is final and valid; and (5) the
       party to be foreclosed by the prior resolution of the
       issue or fact had a full and fair opportunity to
       litigate the issue or fact in the prior proceeding.

In re Microsoft Corp. Antitrust Litig., 355 F.3d 322, 326 (4th

Cir.   2004).       We    review    the     district    court’s      application    of

collateral estoppel de novo, United States v. Fiel, 35 F.3d 997,

1005 (4th Cir. 1994), but we review all factual findings made in

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connection with that ruling for clear error, Sedlack v. Braswell

Servs.     Grp.,    Inc.,       134 F.3d 219,        223    (4th      Cir.     1998).       We

confine our review on appeal to the narrow issues Farkas raises

in   his       informal       brief.      See       4th    Cir.       R.     34(b)    (limiting

appellate review to issues raised in informal brief).

                Farkas    first       asserts       that    the       jury    was    improperly

instructed on the definition of a “security” during his criminal

trial and therefore that the district court in this case erred

in relying on the jury’s finding that Farkas committed fraud in

connection with “securities.”                       Because Farkas challenges this

jury instruction for the first time on appeal, and the district

court had no opportunity to pass on the merits of this issue, we

review it for plain error.                See United States v. Lynn, 592 F.3d
572, 577 (4th Cir. 2010).

                The district court did not plainly err in concluding

that collateral estoppel barred relitigation of whether Farkas

committed fraud in connection with “securities.”                               This question

was actually and necessarily resolved in Farkas’ criminal trial.

At the close of the trial, the jury was instructed that, to

convict     Farkas       of    securities     fraud,       it        was   required       to   find

beyond     a    reasonable       doubt    that       Farkas       committed         the   alleged

fraud      in    connection       with    securities            of    Colonial       BancGroup.

Additionally, Farkas’ indictment alleged that Farkas and his co-

conspirators       made       repeated    fraudulent            misrepresentations             with

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regard   to    mortgage        pools    in     which       Colonial     Bank    purchased      a

participation interest pending resale to third-party investors.

These allegations similarly implicated the sale of securities.

See Zolfaghari v. Sheikholeslami, 943 F.2d 451, 455 (4th Cir.

1991)    (recognizing           that    “securities”          include        “participation

interests in a managed pool of mortgage notes”).                                    Thus, the

question      whether     the     fraud      involved       “securities”       was    clearly

litigated,      and      the    jury    could       not    have     convicted       Farkas    of

securities fraud or conspiracy to commit securities fraud absent

such a finding.

              Farkas’ argument that he lacked ample opportunity or

incentive      to     challenge         this       essential        element     during       his

criminal proceedings is unavailing.                        Farkas provides no reason

to suggest that he lacked an incentive to challenge the jury

instruction      defining         “security”         during       his     criminal        trial.

Instead, he simply argues that the jury instruction was wrong.

Given that he could have, but did not, raise this objection at

trial, “[i]t is just this type of argument . . . that collateral

estoppel bars [him] from making.”                     Pignons S.A. de Mecanique v.

Polaroid      Corp.,     701 F.2d 1,     2    (1st    Cir.     1983)     (a   plaintiff

cannot   rely       on    “new    theories,          evidence,       and     arguments”       to

overcome      collateral         estoppel          where     plaintiff       “had     a    fair

opportunity      to      make    these       arguments        and    to    introduce       this

evidence the first time”).                   See also Astoria Fed. Sav. & Loan

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Ass’n   v.    Solimino,     501 U.S. 104,    107    (1991).        (“[A]    losing

litigant deserves no rematch after a defeat fairly suffered, in

adversarial proceedings, on an issue identical in substance to

the one he subsequently seeks to raise.”); Liberty Mut. Ins. Co.

v.   FAG     Bearings    Corp.,    335 F.3d 752,    763    (8th    Cir.     2003)

(“[M]ost     courts     require    more    to    avoid   issue     preclusion     than

simply an assertion that the previous decision was wrong.”).

              Farkas’ second argument regarding collateral estoppel

fares no better.           He contends that he did not have a full and

fair       opportunity      to    litigate        the     materiality       of     the

misstatements      and     omissions      underlying     his    fraud    convictions

because      the   court    in    his    criminal    prosecution        limited    his

counsel’s ability to question two witnesses as to the precise

monetary amount of the fraud.              We have already rejected Farkas’

challenge to the court’s evidentiary ruling regarding one of

these witnesses, who Farkas sought to cross-examine to show that

his salary and costs “reduced the amount of TBW assets available

to pay its creditors.”            Farkas, 474 F. App’x at 357.                  As the

district court concluded, this inquiry was irrelevant to the

materiality of Farkas’ misstatements and omissions.                        Id.      And

the record clearly belies Farkas’ assertion that his counsel was

prevented from questioning the second witness as to the amount

of collateral available to Colonial Bank.                 Thus, Farkas fails to

establish error in the application of collateral estoppel.

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                                          II.

             Farkas      finally       asserts      that      the     district     court

committed reversible error by failing to explain the findings

supporting     its      imposition      of       injunctive      relief,    precluding

meaningful appellate review of that issue.                      The SEC asserts that

the record is so clear as to make remand unnecessary.                         We agree

with the SEC.

             In moving for summary judgment, the SEC again relied

on facts addressed in Farkas’ criminal prosecution to support

its request for summary judgment as to the injunctive relief.

Farkas does not assert that injunctive relief is improper in his

case, and, importantly, he did not raise such an argument in

opposing the SEC’s motion for summary judgment in the district

court.      Where a party “fails to properly support an assertion of

fact or fails to properly address another party’s assertion of

fact” in responding to a summary judgment motion, the court is

permitted to “consider the fact undisputed for purposes of the

motion,”     and   to    “grant    summary        judgment       if   the   motion   and

supporting      materials         --    including         the       facts   considered

undisputed -- show that the movant is entitled to it.”                           Fed. R.

Civ.   P.    56(e)(2)-(3).         Because       Farkas    did    not   challenge    the

facts identified by the SEC in support of injunctive relief, the

court was entitled to treat them as undisputed in considering

the motion.

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               We    find     that       those     facts,          as    well    as        our     prior

findings in Farkas’ direct appeal, see Farkas, 474 F. App’x at

351-52,        amply     support         the    court’s           decision      to        impose    the

requested relief.            See, e.g., SEC v. Bankosky, 716 F.3d 45, 48

(2d     Cir.     2013)      (listing           factors       to     consider         in     analyzing

“unfitness”         to   serve      as    officer       or    director,         as    required       to

impose officer and director bar); SEC v. Pros Int’l, Inc., 994
F.2d 767, 769 (10th Cir. 1993) (addressing factors to consider

in evaluating likelihood of repetition of securities fraud, as

required for injunction); SEC v. Bonastia, 614 F.2d 908, 912 (3d

Cir. 1980) (listing factors to consider in imposing permanent

injunction); see also 15 U.S.C. § 78u(d)(5) (2012) (authorizing

district court, in action under securities laws, to impose “any

equitable relief that may be appropriate or necessary for the

benefit of investors”).

                                                 III.

               Farkas       also    requests          that    we        place   his        appeal    in

abeyance pending the resolution of his ongoing 28 U.S.C. § 2255

(2012)    proceeding.              We    find    such    relief          unwarranted         in    this

case, given the indisputable finality of his criminal judgment

and the extended delay that would likely result from such a

stay.          Should       Farkas        prove       successful           in    vacating           his

convictions         under    § 2255,       he     may    seek       relief      from       the     civil

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judgment in the district court pursuant to Rule 60(b) of the

Federal Rules of Civil Procedure.

          Accordingly, we deny Farkas’ motion for abeyance and

affirm the district court’s judgment.    We dispense with oral

argument because the facts and legal contentions are adequately

presented in the materials before this court and argument would

not aid in the decisional process.

                                                       AFFIRMED

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