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U.S. Securities and Exchange Commission v. Analytica Bio-Energy Corp.

United States District Court, District of Columbia

July 13, 2018

ANALYTICA BIO-ENERGY CORP., et al. Defendants.



         Before the Court is [14] the Securities and Exchange Commission's (the “SEC”) motion for default judgment against defendant Analytica Bio-Energy Corp. (“Analytica”) and for monetary relief and final judgment against defendant Douglas Murdock. For the reasons described below, the Court will grant the SEC's motion.


         For the purpose of resolving this motion, the Court assumes that all allegations in the well-pleaded complaint are true. See Thomson v. Wooster, 114 U.S. 104, 111 (1885) (plaintiff's claims taken as true after entry of default); Adkins v. Teseo, 180 F.Supp.2d 15, 17 (D.D.C. 2001) (“A defaulting defendant is deemed to admit every well-pleaded allegation in the complaint.”). As alleged, Analytica is a Delaware corporation with shares listed on the over-the-counter market. Compl. [ECF No. 1] ¶ 10. Although Analytica was ostensibly managed by defendant Luiz Brasil, he was president in name only. Id. ¶¶ 19, 21. In reality, Brasil had ceded control to Murdock, who acted as a de facto officer of Analytica from at least July 2013 through October 2014. Id. ¶¶ 19, 21-22. Murdock's previous forays into corporate management had not gone well, however, and he was already permanently enjoined by the Ontario Securities Commission from trading in securities and from acting as an officer or director of any issuer. Id. ¶ 11.

         While under Murdock's stewardship, Analytica filed with the SEC between September 2013 and October 2014 eighteen periodic reports that Brasil and Murdock knew contained material false statements and omissions. Id. ¶¶ 24, 31. The filings falsely conveyed that Brasil had an active-indeed the “sole”-management role in the company, and that he had evaluated and disclosed weaknesses in Analytica's financial reporting and disclosure controls. Id. ¶¶ 25-27. Perhaps unsurprisingly, the filings did not disclose Murdock's own status as a de facto officer and manager of Analytica. Id. ¶ 28.

         Meanwhile, Murdock used his control of Analytica to engage in a fraudulent scheme in which he sold unregistered Analytica shares in the public market. In July 2013, he fraudulently obtained for his own companies 1.5 million Analytica shares which he falsely claimed his companies were due as payment for work they were contracted to perform. Id. ¶¶ 35-41. Due to this fraud, the unregistered shares were provided without a restrictive legend warning that they could not be resold on the public market. Id. ¶ 41. He also caused Analytica's transfer agent to remove improperly the restrictive legend from an additional 1.15 million Analytica shares he held in his name by falsely claiming he was not affiliated with Analytica. Id. ¶¶ 43-46.

         In April 2014, Murdock transferred these and other Analytica shares to an associate, who set up a brokerage account dedicated to holding the shares. Id. ¶¶ 47-48. Between June and August 2014, more than a half million shares were sold to the public at prices ranging from $1.00 to $1.18 per share. Id. ¶¶ 51-53; Decl. of Kevin Guerrero (“Guerrero Decl.”) [ECF No. 14-2] ¶ 2(f). At least $340, 369.57 of the proceeds were then transferred to Murdock. Compl. ¶¶ 51-52; Decl. of Nima Besharat [ECF No. 14-3] ¶¶ 5-9. By March 2018, Analytica's shares were traded at a price of $0.008 per share. Ex. 6 to Guerrero Decl. at 2.

         On February 28, 2018, the SEC brought a complaint against Analytica and Murdock for violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. [ECF No. 1] ¶ 5. The complaint also alleges Murdock violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77e(a), 77e(c), 77q(a). Id. A consent judgment was entered as to Murdock, who waived findings of fact and conclusions of law and agreed that this Court would determine whether “to order disgorgement of ill-gotten gains and/or a civil penalty”; that for the purposes of such determination, the allegations in the complaint would be accepted as true; and that the determination may be made on the basis of affidavits, declarations, and documentary evidence. Consent of Def. Douglas G. Murdock [ECF No. 2] ¶¶ 4-5; Consent J. [ECF No. 8] at 1, 5. Analytica failed to appear or respond to the SEC's complaint, and the clerk entered default against it pursuant to Federal Rule of Civil Procedure 55(a). Clerk's Entry of Default [ECF No. 13]. The SEC now moves for entry of final default judgment against Analytica enjoining it from violating Section 10(b) of the Exchange Act and Rule 10b-5. See Mem. of P. & A. in Supp. of Pl.'s Mot. for Final J . by Defa ult Against Def. Analytica Bio-Energy Corp. and for Monetary Relief and Final J. Against Def. Douglas G. Murdock (“Pl.'s Mot.”) [ECF No. 14] at 13-24. At the same time, it also moves for entry of final judgment against Murdock ordering him to pay disgorgement of $340, 369.57, plus prejudgment interest of $49, 009.26, and a civil monetary penalty of $160, 000. Id. at 24-34. Neither Analytica nor Murdock has opposed the motion.


         A. Default Judgment as to Analytica

         Federal Rule of Civil Procedure 55(a) provides for entry of default “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise.” After entry of default by the clerk, the Court may enter a default judgment against the party pursuant to Rule 55(b).[1] Default establishes the liability of the defaulting party, Adkins, 180 F.Supp.2d at 17, but the Court must independently determine whether the plaintiff is entitled to injunctive relief, see SEC v. E-Smart Techs., Inc., 139 F.Supp.3d 170, 177 (D.D.C. 2015).

         1. Liability

         The SEC filed a complaint alleging Analytica violated Section 10(b) of the Exchange Act and Rule 10b-5, which prohibits the making of “any untrue statement of a material fact” or omission of material fact “in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5. Analytica failed to respond to the complaint or otherwise defend against the action after it was served, and therefore default was appropriately entered against it. See Fed.R.Civ.P. 55(a). This default constitutes an admission by Analytica of liability for the well-pleaded allegations in the complaint, see Adkins, 180 F.Supp.2d at 17, including that Analytica, through Murdock and Brasil, knowingly made material misrepresentations and omissions in SEC filings that were connected with its sale of securities, see Compl. ¶¶ 1-2, 5, 21-22, 24-33, 59-63. Accordingly, the Court finds that the well-pleaded allegations establish Analytica's liability.

         2. ...

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