Court Opinion

ID: 613750
Source: CourtListenerOpinion
Date Created: 2011-09-16 14:39:24+00
Date Added: 2024-06-11T17:50:26.800344
License: Public Domain

10-0788-cv(L)
U.S. Securities and Exchange v. Universal Express, Inc.

                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER

Rulings by summary order do not have precedential effect. Citation to a summary order filed on or
after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and
this court’s Local Rule 32.1.1. When citing a summary order in a document filed with this court, a
party must cite either the Federal Appendix or an electronic database (with the notation “summary
order”). A party citing a summary order must serve a copy of it on any party not represented by
counsel.

    At a stated Term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan United States Courthouse, at 500 Pearl Street, in the City of New York,
on the 16th day of September, two thousand eleven.

Present: ROBERT A. KATZMANN,
         DEBRA ANN LIVINGSTON,
         SUSAN L. CARNEY,
                           Circuit Judges.
____________________________________________________________

U.S. SECURITIES AND EXCHANGE COMMISSION,

                          Plaintiff-Appellee,

                          - v. -                          Nos. 10-0788-cv(L); 10-3647-cv(Con)

UNIVERSAL EXPRESS, INC., RICHARD A. ALTOMARE, CHRIS G.
GUNDERSON, MARK S. NEUHAUS, SPIGA, LTD., TARUN
MENDIRATTA,

                          Defendants,

GEORGE J. SANDHU,

                          Defendant-Appellant.

____________________________________________________________

For Plaintiff-Appellee:                  Mark D. Cahn, General Counsel (Michael A. Conley,
                                         Deputy Solicitor, Luis de la Torre, Senior Litigation
                                         Counsel, Catherine A. Broderick, Counsel to the
                                           Assistant General Counsel, on the brief), U.S.
                                           Securities and Exchange Commission, Washington,
                                           D.C.

For Defendant-Appellant:                   Kevin J. Nash, Goldberg Weprin Finkel Goldstein LLP,
                                           New York, NY

      Appeal from the United States District Court for the Southern District of New York
(Holwell, J.).

       ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the judgment of the district court is AFFIRMED.

       Defendant-Appellant George J. Sandhu appeals from a judgment entered on January 11,

2010 by the United States District Court for the Southern District of New York (Holwell, J.),

imposing disgorgement, prejudgment interest, and civil penalties against Sandhu in the total

amount of $6,036,117. Plaintiff-Appellee Securities and Exchange Commission (“SEC”)

brought a civil enforcement action against the defendants for, inter alia, offering and selling 142

million shares of unregistered securities of Universal Express, Inc. (“Universal”), in violation of

Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, and for engaging in a scheme to

defraud investors by falsely inflating the value of that stock, in violation of Section 10(b) of the

Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. §

240.10b-5. Sandhu entered into a consent agreement filed on November 26, 2007, in which he

neither admitted nor denied the SEC’s allegations and agreed, inter alia, to be permanently

enjoined from participating in any offering of penny stock. The consent agreement also deemed

him liable for disgorgement and prejudgment interest and for civil penalties. The district court

(Lynch, J.) set the amount of disgorgement at $4,064,058, with prejudgment interest of

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$1,472,059, and imposed a civil penalty of $500,000. On appeal, Sandhu argues that (1) the

amount of disgorgement was improperly calculated; (2) the imposition of joint and several

liability was inappropriate because Sandhu did not have sole authority over Spiga, Ltd.

(“Spiga”), nor did he have a sufficiently close relationship with Target Growth Fund Ltd.

(“Target”), and therefore the entire amount of disgorgement cannot be imputed to him; and (3)

the district court erred by not holding an evidentiary hearing to determine the disgorgement

amount. We assume the parties’ familiarity with the facts and procedural history of the case.

       The district court determined “[i]n light of the allegations contained in the complaint, and

the findings of fact contained in the Court’s February 2007 Opinion and Order, the SEC has

established that Sandhu’s illegal trading activity generated proceeds of $4,064,058.” J.A. 524.

Although Sandhu argues that this amount should be reduced by $2.6 million to reflect a transfer

from Spiga to Universal, this argument is without merit. First, the SEC needed to provide only a

reasonable approximation of the profits gained from the illegal activity. SEC v. First Jersey

Sec., Inc., 101 F.3d 1450, 1474-75 (2d Cir. 1996) (“The district court has broad discretion . . . in

calculating the amount to be disgorged.”). Second, as the district court concluded, Sandhu has

failed to show that the transfer reflected a direct transaction cost that could be subtracted from

the disgorgement amount. See, e.g., SEC v. McCaskey, No. 98 Civ. 6153, 2002 WL 850001, at

*4 (S.D.N.Y. Mar. 26, 2002) (“Courts in this Circuit consistently hold that a court may, in its

discretion, deduct from the disgorgement amount any direct transaction costs . . . that plainly

reduce the wrongdoer’s actual profit.”); see also J.A. 521-22; 525. We therefore find no abuse

of discretion in the district court’s calculation of the disgorgement amount.

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       With respect to Sandhu’s claim that he did not alone control Spiga, the complaint

specifically alleged that Sandhu had control over Spiga and exercised authority over the

brokerage accounts in its name, and Sandhu admitted the truth of the allegations in the complaint

for the purposes of determining the disgorgement amount and the imposition of civil penalties.

With respect to Sandhu’s claim that he did not have a sufficiently close relationship with Target,

the complaint alleged that Sandhu and Target collaborated to draft letters that were used as the

basis for false press releases to boost the price of Universal Express shares. Further, the district

court found that “Sandhu’s position as Target’s investment advisor furnished him with

substantial influence over the nature and timing of Target’s sale of securities . . . , including

Universal Express shares, [thus,] Sandhu and Target jointly collaborated in the securities

violations arising from the sale of the Universal Express shares themselves.” J.A. 525. Hence,

his argument that the SEC has not adequately demonstrated that the proceeds should be

attributed to him is unavailing.

       Finally, Sandhu’s argument that he was unable to challenge the amount of disgorgement

because the district court failed to hold an evidentiary hearing is waived on appeal. Sandhu did

not request an evidentiary hearing below, and “it is a well-established general rule that an

appellate court will not consider an issue raised for the first time on appeal.” Greene v. United

States, 13 F.3d 577, 586 (2d Cir. 1994). Even assuming Sandhu’s argument were not waived, he

has not indicated what, if any, evidence he would have presented at an evidentiary hearing that

he did not include as part of the motion practice below that would have altered the district

court’s calculations.

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       We have considered Sandhu’s remaining arguments and find them to be without merit.

Accordingly, for the foregoing reasons, the judgment of the district court is AFFIRMED.

                                               FOR THE COURT:
                                               CATHERINE O’HAGAN WOLFE, CLERK

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