Securities and Exchange Commission v. Braverman: SEC Seeks Emergency Asset Freeze

The Race to the Bottom previously posted on the complaint filed by the Securities and Exchange Commission (“SEC”) against Dmitry Braverman (“Braverman”), alleging that Braverman made $300,000 in illicit profits from an insider trading scheme. This post examines the SEC’s motion for an emergency asset freeze. The SEC argued for emergency relief to prevent Braverman and relief defendant Vitaly Pupynin (“Pupynin”) from moving the allegedly illicit assets out of the reach of the SEC and the courts.

In a memorandum of law filed on September 17, 2014 (the day after the complaint was filed), the SEC set forth arguments supporting its emergency application for an order freezing the assets of both Braverman and Pupynin, repatriating the assets that were moved abroad, and prohibiting Braverman and Pupynin from destroying documents.

The SEC argued it could meet the standard required to obtain a freeze of Braverman’s assets; that standard requires it to show “either a likelihood of success on the merits, or that an inference can be drawn that the party has violated the federal securities laws.”

First, the SEC argued it will likely win its Section 10(b) and Rule 10b-5 insider trading claims against Braverman, and “at a minimum, an inference can be drawn that Braverman violated those provisions.” Second, the SEC argued it will likely win its claims under Section 14(e) and Rule 14e-3, which address instances of insider trading involving tender offers. The SEC alleged Braverman had begun moving his assets out of the reach of the SEC and the court, and argued a freeze is necessary to ensure the SEC will be able to collect any final judgment it obtains. According to the SEC, Braverman may ultimately be liable for more than $1.2 million, including disgorgement, prejudgment interest, and penalties.

Additionally, the SEC argued it could also meet the standard required to obtain a freeze of Pupynin’s assets; that standard requires the SEC to show Pupynin “(1) has received ill-gotten funds; and (2) does not have a legitimate claim to those funds.” Pupynin, named as a relief defendant, is a close relative of Braverman and a resident and citizen of Russia. The SEC alleged Braverman used brokerage accounts in Pupynin’s name and illicit profits were wired to bank accounts in Pupynin’s name.

The SEC also sought an order repatriating the illicit profits Braverman and Pupynin had already moved abroad. The SEC alleged that some of Braverman’s illicit profits have already been wired to a bank account in Latvia and repatriation was necessary to effect the asset freeze.

The SEC additionally sought to prohibit Braverman and Pupynin from altering, destroying, or concealing any documents.

The primary materials for this post can be found on the DU Corporate Governance website at: Plaintiff Securities and Exchange Commission’s Memorandum of Law in Support of its Emergency Application for an Asset Freeze and Other Relief, Sec. & Exch. Comm’n v. Braverman, No. 1:14-CV-07482-RMB (S.D.N.Y. Sept. 17, 2014).