Court Opinion

ID: 4033248
Source: CourtListenerOpinion
Date Created: 2016-09-13 18:01:06.879624+00
Date Added: 2024-06-11T14:36:36.156572
License: Public Domain

Case: 15-20664      Document: 00513675300         Page: 1    Date Filed: 09/13/2016

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                      United States Court of Appeals
                                                                               Fifth Circuit

                                      No. 15-20664                           FILED
                                                                    September 13, 2016
                                                                        Lyle W. Cayce
SECURITIES AND EXCHANGE COMMISSION,                                          Clerk

              Plaintiff - Appellee

v.

DAMIAN OMAR VALDEZ,

              Defendant - Appellant

                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC No. 4:11-CV-2945

Before STEWART, Chief Judge, and CLEMENT and HAYNES, Circuit
Judges.
PER CURIAM:*
       The Securities and Exchange Commission (“SEC”) brought a civil
complaint against Damian Omar Valdez and his two business entities for
federal securities fraud arising out of secured note offerings made to investors.
The district court found that Valdez and his business entities violated federal
securities laws through the note offerings and by conducting a Ponzi scheme.
The district court imposed a third-tier civil monetary penalty under the

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 15-20664     Document: 00513675300      Page: 2   Date Filed: 09/13/2016

                                  No. 15-20664
Securities Act of 1933, 15 U.S.C. § 77t(d), and the Securities Exchange Act of
1934, 15 U.S.C. § 78u(d), in the amount of the gross pecuniary gain to Valdez.
Valdez appeals the district court’s imposition of the civil penalty, challenging
only the amount of the penalty.
      Valdez did not present his specific arguments raised on appeal in
opposition to the SEC’s motion for final judgment before the district court, so
we need not consider them here. See N. Alamo Water Supply Corp. v. City of
San Juan, 90 F.3d 910, 916 (5th Cir. 1996) (stating that the court “will not
consider an issue that a party fails to raise in the district court, absent
extraordinary circumstances”). Even if Valdez had timely and adequately
presented these arguments, they are without merit.
      Valdez first argues that the district court erred by imposing joint and
several liability for the civil penalty against him and his business entities. See
SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279, 287-88 (2d Cir. 2013)
(holding that a civil penalty may not be imposed jointly and severally).
However, the district court imposed a civil penalty only on Valdez based on the
gross amount of pecuniary gain attributable to him, and then denied the SEC’s
motion for civil penalties against his business entities. The district court did
not impose joint and several liability for the civil penalty.
      Valdez next argues that the district court abused its discretion in
calculating the civil penalty imposed on him based on the gross amount of
pecuniary gain to him and his business entities in the aggregate. Valdez
founded, owned, and controlled his business entities. The gain to Valdez’s
business entities inured to Valdez’s benefit, and vice versa. The district court
did not abuse its discretion in calibrating the amount of Valdez’s civil penalty
to include the gain to entities under Valdez’s control, especially given that the
parties’ conduct was inseparable. See, e.g., SEC v. Cole, No. 14-3975-cv, 2016
WL 4703901, at *2 (2d Cir. Sept. 8, 2016) (stating that “multiple defendants
                                        2
    Case: 15-20664      Document: 00513675300      Page: 3    Date Filed: 09/13/2016

                                   No. 15-20664
can each benefit from the same dollar of gain, in which case each can be
penalized for that gain” (internal quotation marks omitted)); SEC v. Amerindo
Inv. Advisors Inc., No. 05 Civ. 5231, 2014 WL 2112032, at *11 (S.D.N.Y. May
6, 2014) (“[W]here multiple defendants mutually benefitted from the same
gains, the best calculation of a single defendant’s gain may be the total gains
obtained by the group through that defendant’s violations.”), aff’d, 639 F. App’x
752 (2d Cir. 2016); SEC v. GTF Enters., Inc., No. 10-CV-4258, 2015 WL 728159,
at *4 (S.D.N.Y. Feb. 19, 2015) (finding that the same gross amount of pecuniary
gain was “separately attributable to both [the individual defendant and
corporate defendant] because, for all practical purposes, [they] acted as one
unit and mutually benefited from the fraud”).
      Finally, Valdez argues that the district court abused its discretion by not
offsetting the civil penalty by the amount of funds held in trust during
execution of Valdez’s fraudulent scheme and subsequently returned to
investors post-fraud. Valdez controlled the investor funds at all times and used
them to pay himself excessive fees. The funds were held in trust by a nominal
trustee that had no discretion over use of the funds. Accordingly, the district
court did not abuse its discretion in declining to offset the civil penalty in a way
that would credit Valdez for funds returned to investors after his fraud was
discovered. See SEC v. Kern, 425 F.3d 143, 153 (2d Cir. 2005) (“[T]he actual
amount of the [civil] penalty [is] left up to the discretion of the district court.”).
      AFFIRMED.

                                          3