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June 12, 1995


The opinion of the court was delivered by: ANITA B. BRODY


 Anita B. Brody, J.

 June 12, 1995

 Pursuant to the authority granted it under section 20(b) of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77t(b), and section 21(d)(1) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78u(d)(1), plaintiff Securities and Exchange Commission ("SEC") seeks the entry of a negotiated consent order granting a preliminary injunction against defendant John G. Bennett, Jr. The principal question before me is whether I have subject matter jurisdiction over this action. For the reasons set forth below, I conclude that I do. Accordingly, because Mr. Bennett has consented to the terms of the proposed preliminary injunction and because I defer to the SEC's judgment in negotiating those terms, I now enter that injunction as an order.


 On May 18, 1995, the SEC filed its complaint in this action, alleging that defendants had engaged in a massive Ponzi scheme to defraud various individuals and nonprofit organizations by means of a sham "matching" gift program financed by fictitious "anonymous benefactors." The same day, the SEC petitioned for entry of the proposed consent injunction under consideration now. *fn1" I held a conference on the record in open court that evening to discuss my concerns with the proposed injunction. Those concerns centered on the issue of my subject matter jurisdiction, specifically, whether the instruments involved here were "securities" within the meaning of those laws. I made a provisional finding of jurisdiction and directed that the jurisdictional issue be briefed by May 31, 1995. Then, after setting a date for a preliminary injunction hearing, I entered the proposed consent injunction as a temporary restraining order. In issuing these rulings, I acted pursuant to the long line of authority originating with United States v. United Mine Workers of Am., 330 U.S. 258, 293, 91 L. Ed. 884, 67 S. Ct. 677 (1947), which recognizes the traditional power of a court to "exercise jurisdiction to determine its jurisdiction" and to make related rulings necessary to preserve the status quo until a final determination of jurisdiction.

 The SEC has now responded to my jurisdictional concerns with a thorough brief and with substantial factual affidavits that are supported by extensive exhibits. The SEC's submissions, together with the allegations in its complaint, allay any doubts about my jurisdiction in this case. Accordingly, I find that I have subject matter jurisdiction over this action. That finding empowers me to proceed to the proposed preliminary injunction, which I now enter as an order because Mr. Bennett has consented to its terms and because the injunction is not unfair or otherwise unreasonable. *fn2"


 A. Subject Matter Jurisdiction

 Both the Securities Act and the Exchange Act confer upon a district court subject matter jurisdiction over actions to enforce liabilities or duties created by those statutes or by rules and regulations promulgated under those statutes. 15 U.S.C. § 77v(a); 15 U.S.C. § 78aa. Because these statutes govern not general business fraud but only the issuance and trading of "securities," jurisdiction under the securities laws will not lie unless the transactions at issue involve an instrument that qualifies for the label "security." Whether the interest at issue meets the definition of "security," then, "is both a question of subject matter jurisdiction and an element of" the substantive claim under the securities laws. Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 239 (4th Cir. 1988) (Powell, J.).

 Where, as here, an element of the substantive federal claim goes also to the court's subject matter jurisdiction, the jurisdictional inquiry is distinguished from the counterpart merits determination by application of a more deferential standard. Unlike a merits determination, the jurisdictional inquiry in a federal question case asks not whether the "legal theory alleged is probably false," but only whether "the right claimed is so insubstantial, implausible, foreclosed by prior [court decisions] or otherwise completely devoid of merit as not to involve a federal controversy." Kulick v. Pocono Downs Racing Ass'n, Inc., 816 F.2d 895, 899 (3d Cir. 1987) (internal quotations omitted) (citing Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666, 39 L. Ed. 2d 73, 94 S. Ct. 772 (1974) and Bell v. Hood, 327 U.S. 678, 682-83, 90 L. Ed. 939, 66 S. Ct. 773 (1946)).

 But the degree of judicial deference envisioned in Kulick's "wholly insubstantial" jurisdictional standard is premised upon the assumption that at some point before the court is called upon to adjudicate substantial rights or responsibilities, the parties will contest the merits of the claims alleged. See Bell, 327 U.S. at 682; Kulick, 816 F.2d at 898. See also Growth Horizons, Inc. v. Delaware County, Pa., 983 F.2d 1277, 1281 n.5 (3d Cir. 1993) (observing that court retains ability to "examine facts in determining jurisdiction" so long as it does not disregard deferential jurisdictional standard of cases such as Bell and Kulick). In the usual preliminary injunction scenario, for example, a district court confronted with a dual jurisdictional-substantive allegation can, at the jurisdictional stage, brush aside all but the most glaring questions about the viability of that allegation, confident that the point will be debated by motivated adversaries when the propriety of the injunction's issuance is taken up.

 Here, the adversary machinery is not functioning, for Mr. Bennett, advised by counsel, has consented to the terms of the proposed injunction. As a result, I find myself being asked to approve equitable relief without ever being given the comfort of a contested (if preliminary) exchange on the merits of the SEC's threshold jurisdictional allegation: that Mr. Bennett and co-defendant Foundation for New Era Philanthropy ("New Era") engaged in transactions involving a "security." I therefore deem it appropriate to subject the bare jurisdictional allegations in the complaint to slightly more rigorous scrutiny than would otherwise be appropriate, and to require that they be corroborated by affidavit testimony or exhibits submitted by the SEC. After reviewing the SEC's affidavits and exhibits, I conclude that the SEC's characterization of the interests at issue here as "securities" surpasses the "wholly insubstantial" standard set forth above. *fn3"

 B. Preliminary Injunction

 Having found subject matter jurisdiction here, I turn to the proposed consent injunction. Federal policy strongly favors the use of consent injunctions as a means of achieving efficiency in securities law enforcement. See, e.g., X Louis Loss & Joel Seligman, Securities Regulation 4681 & n.52 (3d ed. 1993) (noting wide use of consent injunctions); Thomas L. Hazen, Administrative Enforcement: An Evaluation of the Securities and Exchange Commission's Use of Injunctions and Other Enforcement Methods, 31 Hastings L.J. 427, 450-51 (discussing potential efficiencies to be derived from use of consent injunctions). The Supreme Court, moreover, "has long endorsed the propriety of the use and entry of consent judgments." Securities & Exchange Comm'n v. Randolph, 736 F.2d 525, 527 (9th Cir. 1984) (collecting Supreme Court cases). In reviewing this proposed consent injunction, I am to pay substantial deference to the SEC's judgment in negotiating it, Randolph, 736 F.2d at 529, and I am to reject it only if it is "unfair, inadequate, or unreasonable." Id.

 The proposed consent injunction should be approved. It is not unfair or unreasonable on its face, and it is evidently the product of substantial negotiation between Mr. Bennett and the SEC. Moreover, Mr. Bennett's counsel represented at the May 18, 1995, conference that they had reviewed it carefully with Mr. Bennett and had advised him to sign it. Accordingly, I approve and adopt the proposed consent injunction, and I enter it as a preliminary injunction ordered by the Court.


 Based on the SEC's complaint and supporting submissions, I find that the characterization of the interests at issue here as "securities" surpasses Kulick's "wholly insubstantial" standard, and I therefore find that I have subject matter jurisdiction over this action. Furthermore, I approve and enter as an order of the Court the proposed consent preliminary injunction.


 Anita B. Brody, J.

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