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Securities and Exchange Commission v. Bolla

October 29, 2007

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
STEVEN M. BOLLA, WASHINGTON INVESTMENT NETWORK, SUSAN BOLLA, AND ROBERT RADANO, DEFENDANTS.



The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge

MEMORANDUM OPINION

On May 18, 2007, the United States Court of Appeals for the District of Columbia Circuit issued its Mandate regarding the injunction entered by this Court following the bench trial of Defendants Washington Investment Network ("WIN") and Robert Radano (collectively "Defendants"). Specifically, the D.C. Circuit Mandate directs this Court "to amend the injunction to describe more specifically the act or acts sought to be restrained." See SEC v. Bolla, Civil Action No. 02-1506, USCA Mandate, Docket No. 68. Currently pending before the Court is the parties' briefing regarding amending the injunction, as well as Defendants' Motion for Reconsideration and Clarification of the Court's August 22, 2007 Order granting-in-part the motion to strike Defendants' opening brief filed by the Securities and Exchange Commission ("SEC"). Upon a searching review of the parties' filings, the relevant statutes and case law, and the entire record herein, the Court shall grant-in-part and deny-in-part Defendants' [79] Motion for Reconsideration and Clarification, shall grant-in-part and deny-in-part Defendants' alternative [80] Motion to Strike Portions of the SEC's Proposed Judgment and Set Briefing Schedule, and shall enter the following revised injunctions:

Defendants WIN and Radano, their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 203(f) of the Investment Advisers Act of 1940 by willfully becoming, or being, associated with an investment adviser without the consent of the Securities and Exchange Commission ("SEC") if the SEC has issued an order against them suspending them or barring them from being associated with an investment adviser, or by permitting a person who was the subject of an SEC order barring or suspending him or her from associating with an investment adviser to become, or remain, a person associated with an investment adviser without the consent of the SEC if either WIN or Radano knew, or in the exercise of reasonable care, should have known, of such order. Defendants WIN and Radano, their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 by the use of any means or instruments of interstate commerce or by the use of the mails, directly or indirectly:

(a) employing any device, scheme, or artifice to defraud any client or prospective client; or

(b) engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.

I. BACKGROUND

The Court presumes knowledge of the facts of this case, which are extensively addressed in both SEC v. Bolla, 401 F. Supp. 2d 43 (D.D.C. 2005) and SEC v. WIN, 475 F.3d 392 (D.C. Cir. 2007). The Complaint in this action was filed on July 31, 2002, alleging violations of the Investment Advisers Act of 1940 (the "Advisers Act"), 15 U.S.C. § 80b-1 et seq. Thereafter, Defendants Steven M. Bolla and Susan Bolla entered into a settlement with the SEC. A bench trial was held before this Court on July 26-28, 2004 to determine the liability of Defendants WIN and Radano. On September 22, 2005, the Court issued a Memorandum Opinion finding Defendant WIN liable for violating Sections 203(f), 206(1) and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-3(f), 80b-6(1), and 80b-6(2) respectively, and finding that Defendant Radano aided and abetted WIN's violations. See generally SEC v. Bolla, 401 F. Supp. 2d 43. The Court imposed a civil monetary penalty of $15,000 against Defendant Radano, and imposed a $50,000 penalty against Defendant WIN. In addition, the Court enjoined both Defendants "from future violations of Sections 203(f), 206(1) and 206(2) of the Advisers Act." See id. at 74; see also Order, SEC v. Bolla, Civil Action No. 02-1506 (D.D.C. Sept. 22, 2005).

Defendants WIN and Radano appealed the issuance of the injunction, the form of the injunction, and the imposition of monetary penalties. On February 6, 2007, the D.C. Circuit issued an opinion affirming this Court's findings of violations, as well as the imposition of penalties. SEC v. Washington Inv. Network, 475 F.3d 392, 407 (D.C. Cir. 2007). The D.C. Circuit also affirmed on the merits this Court's issuance of an injunction, but found the injunction to be "insufficiently specific" for two reasons. Id. First, citing Federal Rule of Civil Procedure 65(d), the D.C. Circuit held that the injunction did not "clarify the act or acts sought to be restrained." Id. Second, the D.C. Circuit found that the injunction "might subject defendants to contempt for activities having no resemblance to the activities that led to the injunction, thereby being overly broad in its reach." Id. (citing SEC v. Savoy Indus., Inc., 665 F.2d 1310, 1318-19 (D.C. Cir. 1981)). The D.C. Circuit therefore remanded the case to this Court "to reform the injunction and to address the question of overbreadth." Id.

Following remand, the parties were unable to agree upon mutually acceptable language to amend the injunction in compliance with the D.C. Circuit Mandate. Accordingly, on August 15, 2007, the SEC and Defendants WIN and Radano filed opening briefs regarding the scope of the injunction. On August 16, 2007, the SEC filed a motion to strike Defendants WIN and Radano's opening brief, arguing that it addressed matters already resolved by the Court of Appeals and exceeded the limited issue to be addressed pursuant to the Mandate. On August 22, 2007, the Court granted that motion to strike "to extent that Defendants' opening brief addresses issues beyond amending the injunction in accordance with the Mandate." Order, SEC v. Bolla, Civil Action No. 02-1506 (D.D.C. Aug. 22, 2007). Thereafter, Defendants WIN and Radano filed a [79] Motion for Reconsideration and Clarification of the Court's August 22, 2007 Order or, in the Alternative, to Strike Portions of the SEC's Proposed Judgment and Set Briefing Schedule. The SEC filed its opposition to that motion on September 6, 2007, and Defendants filed their Reply on September 10, 2007. In addition, on September 4 and September 5, 2007, respectively, the SEC and Defendants filed their responsive briefs regarding the scope of the injunction.

II. DISCUSSION

A. Defendants' Motion for Reconsideration and Clarification of the Court's August 22, 2007 Order

The issue before the Court on remand from the D.C. Circuit is narrowly confined. Specifically, the D.C. Circuit affirmed on the merits this Court's finding of violations and issuance of an injunction, and remanded the case to this Court in order "to amend the injunction to describe more specifically the act or acts sought to be restrained." SEC v. WIN, 475 F.3d at 407. Accordingly, as noted above, the Court struck those portions of Defendants' opening brief that went beyond the scope of the D.C. Circuit's Mandate. See Order, SEC v. Bolla, Civil Action No. 02-1506 (D.D.C. Aug. 22, 2007). Defendants' Motion for Reconsideration and Clarification requests that the Court reconsider three aspects of Defendants' opening brief stricken by the Court. The Court shall grant-in-part and deny-in-part Defendants' Motion for the following reasons. First, Defendants argue that the Court should reconsider the factual issue of whether Defendant Radano may have fabricated evidence because that determination is relevant to the scope of the injunction to be issued in this case. See Defs.' Mot. for Reconsid. at 3. The Court declines, however, to reconsider the factual findings and legal conclusions made in its September 22, 2005 Memorandum Opinion, which has been affirmed on the merits by the D.C. Circuit. Second, Defendants argue that the Court should clarify the statutory basis for its imposition of monetary penalties. See id. at 4-5. While the D.C. Circuit did not consider Defendant Radano's argument regarding monetary penalties due to his failure to raise it before this Court, the D.C. Circuit nevertheless specifically affirmed this Court's "imposition of penalties on WIN and Radano, as set forth in [this Court's] judgment." SEC v. WIN, 475 F.2d at 407. As such, the Court shall not reconsider Defendants' arguments regarding monetary penalties.*fn1

However, insofar as the Court's August 22, 2007 Order may be interpreted as striking Defendants' legal arguments regarding the scope of the injunction in this case, see Defs.' Mot. for Reconsid. at 1-2, the Court clarifies that those arguments were not stricken, but rather are considered in the Court's discussion of the injunction below. Finally, to the extent that Defendants' Motion for Reconsideration and Clarification contains a request, in ...


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