SEC v. Softpoint, Inc.

SEC v. Softpoint, Inc.

Opinion

MEMORANDUM ORDER

JED S. RAKOFF, U.S.D.J.

On January 4, 2012, the Securities and Exchange Commission ("SEC") moved under Federal Rule of Procedure 69(a) and N.Y. C.P.L.R. § 5225(a) for an order requiring Robert Cosby to turn over any interest he retains in money that Canadian officials seized from him. The SEC served notice of its motion on Cosby and other parties it thought might claim an interest in the relevant funds. Declaration of John J. Graubard dated January 23, 2012 ¶ 2. Only Cosby responded. In a letter to the Court dated January 30, 2012 and in a telephonic appearance at oral argument on February 7, 2012, Cosby argued only that a Canadian court's jurisdiction over the funds deprived this Court of any jurisdiction. For the reasons stated below, the Court finds that it has jurisdiction to issue a turnover order and grants the SEC's motion in its entirety.

From 1992 to 1994, Cosby and Ronald Stoeklein  [*2] implemented the following fraudulent scheme through Softpoint, Inc. ("Softpoint"). Declaration of John J. Graubard dated January 4, 2012 ("Graubard Decl.") ¶ 4. First, Cosby and Stoeklein artificially inflated Stockpoint's earnings by reporting fictitious sales of software to European shell companies set up by Cosby. Id. Softpoint then issued unregistered shares of its common stock to these same foreign companies, purportedly in exchange for "market rights." Id. Next, Softpoint pretended to repatriate the stock through Regulation S and sold it to American investors for $1.72 million. Id. Finally, Softpoint used the money it received for the stocks to allow the European shell companies to pay their debts on the fictitious sales. Id. Thus, Softpoint ultimately received approximately $1.34 million in exchange for the unregistered shares of a company that appeared to earn far more than in fact it did. Id.

The SEC brought suit against Cosby, alleging that he had violated §§ 5(a), 5(c), & 17(a) of the Securities Act of 1933, 15 U.S.C. § 77a et seq., and § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. Id. ¶ 5. On May 9, 1996, then-Judge Sotomayor entered a partial default  [*3] judgment. Id. ¶ 6. Cosby filed a document entitled "Non-Statutory Abatement," which claimed to "nullify" the default judgment as a "public nuisance." Id. Judge Sotomayor then directed Cosby to challenge the judgment under Federal Rule of Civil Procedure 60 if he so desired. Id. ¶¶ 6-7. After having heard nothing from Cosby for nearly two months, she entered a final default judgment requiring Cosby to disgorge $779,971. Id. Four years later, Cosby moved to set aside the judgment, but lost both in the district court and on appeal. Id. ¶¶ 9-10.

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