Court Opinion

ID: 6498372
Source: CourtListenerOpinion
Date Created: 2022-07-07 15:00:24.967634+00
Date Added: 2024-06-11T08:51:01.630178
License: Public Domain

21-1348-cv
     SEC v. Penn
                               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.

 1         At a stated term of the United States Court of Appeals for the Second Circuit,
 2   held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
 3   City of New York, on the 7th day of July, two thousand twenty-two.
 4
 5          PRESENT: ROSEMARY S. POOLER,
 6                           RAYMOND J. LOHIER, JR.,
 7                           WILLIAM J. NARDINI,
 8                                   Circuit Judges.
 9          ------------------------------------------------------------------
10          UNITED STATES SECURITIES AND
11          EXCHANGE COMMISSION,
12
13                          Plaintiff-Appellee,
14
15                  v.                                                           No. 21-1348-cv
16                                                                                    21-1352-cv
17          LAWRENCE E. PENN, III, CAMELOT
18          ACQUISITIONS SECONDARY
19          OPPORTUNITIES MANAGEMENT, LLC, THE
20          CAMELOT GROUP INTERNATIONAL, LLC,
21
22                          Defendants-Appellants,
 1   CASO CO-INVEST A, LLC, CAMELOT
 2   ACQUISITIONS SECONDARY
 3   OPPORTUNITIES GP, LLC,
 4
 5                   Interested Parties-Appellants,
 6
 7   MICHAEL ST. ALTURA EWERS, SSECURION,
 8   LLC, A BIGHOUSE PHOTOGRAPHY AND
 9   FILM STUDIO, LLC,
10
11                   Defendants,
12
13   NEW YORK COUNTY DISTRICT ATTORNEY’S
14   OFFICE,
15
16                   Intervenor.
17
18   ------------------------------------------------------------------
19
20   FOR PLAINTIFF-APPELLEE:                                   DANIEL STAROSELSKY (Dan M.
21                                                             Berkovitz, Michael A. Conley,
22                                                             on the brief), Securities &
23                                                             Exchange Commission,
24                                                             Washington, DC
25
26   FOR DEFENDANT-APPELLANT
27   LAWRENCE E. PENN, III:                                    LAWRENCE E. PENN, pro se,
28                                                             New York, NY
29
30   FOR DEFENDANTS-APPELLANTS AND
31   INTERESTED PARTIES-APPELLANTS: KEITH W. MILLER, Perkins Coie
32                                  LLP, New York, NY
33
34

                                                  2
 1         Appeal from orders of the United States District Court for the Southern

 2   District of New York (Valerie E. Caproni, Judge).

 3         UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

 4   AND DECREED that the challenged orders of the District Court are AFFIRMED.

 5         Lawrence Penn, proceeding pro se, and two entities he controlled, The

 6   Camelot Group International, LLC (“CGI”) and Camelot Acquisitions Secondary

 7   Opportunities Management, LLC (“CASO Management”) (together, the

 8   “Camelot Defendants”), appeal from orders of the United States District Court

 9   for the Southern District of New York (Caproni, J.) denying their motions under

10   Federal Rule of Civil Procedure 60(b) for relief from the final judgments against

11   them. Penn and two other companies he controlled, Camelot Acquisitions

12   Secondary Opportunities GP, LLC (“CASO GP”) and CASO Co-Invest A, LLC

13   (“CASO Co-Invest”), also appeal from the District Court’s order granting a

14   motion filed by the Securities and Exchange Commission (“SEC”) for turnover of

15   assets. We assume the parties’ familiarity with the underlying facts and the

16   record of prior proceedings, to which we refer only as necessary to explain our

17   decision to affirm.

18         Penn managed the private equity fund Camelot Acquisitions Secondary

                                             3
1    Opportunities LP (the “Fund”) from 2007 until 2014.1 During that period he

 2   misappropriated approximately $9.3 million from the Fund by using a shell

3    corporation to send the Fund invoices for services the corporation did not

4    perform and then forwarding the proceeds from payment of the invoices to the

5    Camelot Defendants. In 2014 the SEC filed a civil enforcement action in federal

6    court against Penn, the Camelot Defendants, and others. In 2015, based on the

7    same facts that underlay the SEC action, Penn pleaded guilty to grand larceny

8    and falsifying business records in a parallel criminal proceeding in New York

9    state court. In the civil action, the District Court granted the SEC’s motions for

10   summary judgment as to Penn and the Camelot Defendants, whom it concluded

11   had violated the federal securities laws, and it ordered them to disgorge their ill-

12   gotten gains.

13          In July 2020 the SEC filed a motion for the turnover of assets held in bank

14   accounts belonging to Penn, the Camelot Defendants, and non-parties CASO GP,

15   CASO Co-Invest, and CASO Offshore. In September 2020 Penn and the

     1
       “The appeal from the denial of a motion to vacate pursuant to Rule 60(b) brings up for
     review only the validity of that denial, not the merits of the underlying judgment itself.”
     SEC v. McNulty, 137 F.3d 732, 741 (2d Cir. 1998). These facts are therefore taken from
     the District Court’s prior opinions determining liability. See Special App’x 1–16, 47–62.
                                                   4
1    Camelot Defendants each filed a Rule 60(b) motion, arguing that the District

 2   Court’s disgorgement orders conflicted with Liu v. SEC, 140 S. Ct. 1936 (2020).

 3   The District Court denied the Rule 60(b) motions and granted the SEC’s turnover

 4   motion.

 5             I.   Rule 60(b) Motions

6          “The decision whether to grant a party’s Rule 60(b) motion is committed to

7    the ‘sound discretion’ of the district court, and appellate review is confined to

 8   determining whether the district court abused that discretion.” Stevens v.

 9   Miller, 676 F.3d 62, 67 (2d Cir. 2012) (quoting In re Emergency Beacon Corp., 666

10   F.2d 754, 760 (2d Cir. 1981)). The District Court entered final judgment against

11   the Camelot Defendants on April 30, 2020, after which they had sixty days, until

12   June 29, 2020, to file an appeal. See Fed. R. App. P. 4(a)(1)(B). Although this

13   deadline fell after the Supreme Court issued its decision in Liu on June 22, 2020,

14   the Camelot Defendants did not appeal the final judgment against them or file a

15   request to extend the time to file a notice of appeal. See Fed. R. App. P.

16   4(a)(5)(A). Instead, they waited until August 18, 2020—months after the final

17   judgment, the decision in Liu, and the deadline to appeal—to inform the District

18   Court of their intention to file a Rule 60(b) motion. Their principal argument in

                                              5
1    that motion and on this appeal—that the disgorgement award is inconsistent

 2   with Liu—should have been brought on direct appeal because “[i]n no

 3   circumstances . . . may a party use a Rule 60(b) motion as a substitute for an

 4   appeal it failed to take in a timely fashion.” Stevens, 676 F.3d at 67.

5          The Camelot Defendants respond that their failure to appeal should be

6    excused because they were unrepresented during the litigation. But they were

7    represented until Penn fired their counsel. Our review of the record persuades

8    us that the District Court reasonably concluded that the Camelot Defendants’

9    “lack of representation is far from an innocent excuse; instead, it was a calculated

10   decision by Penn, their sole owner.” Special App’x 92. We also agree with the

11   District Court that the Camelot Defendants improperly used their Rule 60(b)

12   motion as a substitute for a timely appeal, and we therefore find no abuse of

13   discretion in the District Court’s denial of their motion.

14         As for Penn’s motion, Rule 60(b)(6) motions must be made within a

15   “reasonable time” and are granted only in “extraordinary circumstances.”

16   Stevens, 676 F.3d at 67. 2 “In considering whether a Rule 60(b)(6) motion is

     2
       We previously dismissed Penn’s timely appeal of the final judgment against him
     because it lacked an arguable basis either in law or in fact. See SEC v. Penn, No. 18-
     3602 (2d Cir. Oct. 4, 2019).
                                                  6
 1   timely, we must scrutinize the particular circumstances of the case, and balance

 2   the interest in finality with the reasons for delay.” PRC Harris, Inc. v. Boeing

 3   Co., 700 F.2d 894, 897 (2d Cir. 1983). The District Court concluded that Penn

4    unreasonably delayed filing his Rule 60(b) motion and provided “no explanation

5    or justification for his delay.” Special App’x 86–87. On appeal, Penn has failed

6    to provide any explanation for his delay. We conclude that the District Court

7    did not abuse its discretion in finding that Penn’s Rule 60(b) motion was not

 8   made within a “reasonable time.”3

 9          II.   Turnover Motion

10         Penn, CASO GP, and CASO Co-Invest appeal from the District Court’s

11   order granting the SEC’s turnover motion. “Once the district court has found

     3
       The District Court denied another Rule 60(b) motion by Penn that was based on New
     York Governor Andrew Cuomo’s pardon of his state criminal offenses. See SEC v.
     Penn, 14 Civ. 581, 2022 WL 1991381 (S.D.N.Y. June 3, 2022). Penn filed a separate
     appeal of that District Court decision. SEC v. Penn, 2d Cir. No. 22-1262. The SEC
     filed a motion to consolidate the two appeals. See SEC v. Penn, 2d Cir. No. 21-1348,
     ECF Nos. 123, 130. Penn raises similar arguments in this appeal regarding the
     gubernatorial pardon. The District Court’s liability finding was based not only on
     Penn’s plea allocution in state court but also separately on the admissions in his
     amended answer in this action, which are not the subject of the pardon and “are judicial
     admissions that bind the defendant throughout th[e] litigation.” Gibbs ex rel. Gibbs v.
     CIGNA Corp., 440 F.3d 571, 578 (2d Cir. 2006). We therefore need not consider the
     effect of the pardon on the District Court’s judgment.
                                                   7
 1   federal securities law violations, it has broad equitable power to fashion

 2   appropriate remedies, including ordering that culpable defendants disgorge their

 3   profits.” SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474 (2d Cir. 1996).

 4   “Federal courts may order equitable relief against a person who is not accused of

 5   wrongdoing in a securities enforcement action where that person: (1) has

 6   received ill-gotten funds; and (2) does not have a legitimate claim to those

 7   funds.” SEC v. Cavanagh, 155 F.3d 129, 136 (2d Cir. 1998).

 8         The District Court granted the turnover motion as to Penn because his

 9   objections “simply rehash his claims of innocence.” Special App’x 107. Penn

10   repeats the same claims on appeal, arguing that he had the “right to make

11   investments, pay expenses and receive distributions from the Fund.” Penn

12   Opening Br. 42. But an “appeal from the denial of a motion to vacate pursuant

13   to Rule 60(b) brings up for review only the validity of that denial, not the merits

14   of the underlying judgment itself.” SEC v. McNulty, 137 F.3d 732, 741 (2d Cir.

15   1998). We therefore affirm the District Court’s turnover order as to Penn.

16         Turning to the non-parties, the District Court concluded that the funds in

17   the CASO GP and CASO Co-Invest accounts were ill-gotten because bank

18   records showed that the relevant funds were the remainder of $10,000 wire

                                               8
 1   transfers from Defendant CGI that were made “while the . . . scheme was on-

 2   going.” Special App’x 108–10. Neither CASO GP nor CASO Co-Invest had

 3   legitimate claims to the funds because there was no evidence that CGI received

 4   any consideration for the funds. See CFTC v. Walsh, 618 F.3d 218, 226 (2d Cir.

 5   2010); Special App’x 109, 111. We therefore conclude that the District Court did

 6   not abuse its discretion in determining that, based on bank account records,

 7   neither CASO GP nor CASO Co-Invest “provided some form of valuable

 8   consideration in good faith in return for proceeds of fraud.” Walsh, 618 F.3d at

 9   226.

10          We have considered the Appellants’ remaining arguments and conclude

11   that they are without merit. For the foregoing reasons, the challenged orders of

12   the District Court are AFFIRMED. 4

13                                           FOR THE COURT:
14                                           Catherine O’Hagan Wolfe, Clerk of Court
15

     4
       We also GRANT the SEC’s motion to consolidate this appeal with No. 22-1262 and
     DISMISS appeal No. 22-1262 because it “lacks an arguable basis either in law or in
     fact.” Neitzke v. Williams, 490 U.S. 319, 325 (1989). Penn separately filed a motion to
     certify a question regarding his pardon to the New York Court of Appeals. SEC v.
     Penn, 2d Cir. No. 21-1348, ECF No. 119. That motion is DENIED.
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