SEC v. Ryan: Summary Judgment and Release of Funds Granted
In SEC v. Ryan, No. 1:10-CV-513, 2015 BL 287568 (N.D.N.Y. Sept. 4, 2015), the United States District Court for the Northern District of New York found that defendants Matthew John Ryan, Prime Rate and Return, L.L.C., and American Integrity (collectively, “Defendants”) had admitted to facts establishing securities fraud in Ryan’s guilty plea and did not offer any opposition to Securities and Exchange Commission’s (“SEC”) allegations. Thus, the court granted the SEC’s motions for summary judgment and release of funds to the clerk of the court.
According to Ryan’s plea agreement, from February 2002 through May 2010, Ryan, founder, owner, and sole managing member of Prime Rate and Return, L.L.C. (“Prime Rate”) conducted business as American Integrity Financial Co. (“American Integrity”), soliciting and receiving money from investors as a representative of American Integrity. According to the plea agreement, Ryan “falsely represented to investors that American Integrity was a substantial Manhattan-based financial services firm with numerous employees and for which he was merely a representative” and “made false representations to a number of investors that their investments were safe, by representing that investments were insured up to specific dollar amounts, by the Securities Investor Protection Corporation (SIPC).”
In May 2010, the SEC brought a civil action against Defendants alleging securities fraud and seeking declaratory judgment, injunction, and disgorgement of ill-gotten gains. In April 2013, the court entered judgment against Defendants and ordered disgorgement. Additionally, the Government indicted Ryan on counts of securities fraud and mail fraud, to which Ryan pleaded guilty.
The Commission filed a motion for summary judgment. The court held all elements of the securities fraud claims pursuant to Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 were unambiguously established as a result the plea agreement. Additionally, the court concluded the SEC established the element of scienter because Ryan’s admissions demonstrated his intent to defraud investors. Thus, the court determined the SEC was entitled to summary judgment on both causes of action.
With regard to the SEC's claim of Section 5(a) and 5(c) violations – alleging Defendants failed to file a registration statement for American Integrity securities and sold such securities using interstate commerce – the court granted the SEC motion for summary judgment. The court concluded that plea agreement sufficiently established the elements of a Section 5 violation. See Id. (“Ryan’s plea agreement establishes that he offered and sold securities as to which there was no registration statement and that he used interstate commerce to do so. Defendants do not argue that the transactions are exempted under 15 U.S.C. § 774d, nor is there any factual basis upon which defendants could successfully make such an argument.”). As a result, the court held there was no material question of fact.
In addition to summary judgment, the SEC sought a permanent injunction against Ryan to restrain him from committing future securities violations. A motion for permanent injunction requires the SEC to demonstrate future violations of illegal securities conduct are substantially likely to occur. In its decision, the court considered the fact that Ryan pleaded guilty to the violations and admitted to committing “repeated, calculated fraudulent acts involving more than 50 people and millions of dollars,” yet in the SEC action “maintained that his past conduct was blameless.” Based on these considerations, the court found the permanent injunction was warranted. Id. (“In view of Ryan’s extensive experience in the securities and investment industry, the egregious nature of his criminal conduct as discussed above, and his adamant refusal to acknowledge his wrongdoing or its impact on his victims, there is great potential that Ryan will again engage in illegal securities conduct.”). The court also granted the disgorgement based on all these circumstances.
Finally, the court granted the motion for release of all funds the SEC received from Defendants to the clerk of the court for distribution according to the Restitution Order in the criminal action. Because both the SEC’s action and the criminal prosecution were based on the same fraudulent conduct, the court held the restitution decision would best reflect the most reasonable and fair outcome.
The primary materials for this case may be found on the DU Corporate Governance website.