The opinion of the court was delivered by: DuBOIS, J.
This is a securities fraud case in which plaintiffs, Fox International Relations ("Fox") and its two managing partners, Michael and Natan Lisitsa, claim that defendants, Eric Laucius ("Laucius") and Michael Kogan ("Kogan"), violated federal and state securities laws on numerous occasions. Presently before the Court are (1) plaintiffs' motion for summary judgment in their favor on the claims against Laucius asserted in the Third Amended Complaint, (2) Laucius's motion for summary judgment in his favor on the counterclaims asserted against Michael and Natan Lisitsa, (3) Laucius's motion for sanctions and (4) plaintiffs' motion for default judgment against Kogan.
For the reasons set forth below, the Court denies plaintiffs' motion seeking summary judgment in their favor on the claims in the Third Amended Complaint and denies Laucius's motion seeking summary seeing judgment in his favor on his counterclaims.
Because the Court concludes that plaintiffs' evidence is legally insufficient to allow plaintiffs' claims against Laucius to be submitted to a jury, judgment is entered in favor of Laucius and against plaintiffs on those claims.
Plaintiffs' response to Laucius's motion for summary judgment in his favor on his counterclaims against Michael and Natan Lisitsa challenges the sufficiency of the evidence Laucius provides to support those counterclaims. The Court treats this response as a motion for summary judgment against Laucius, grants the motion, and enters judgment in favor of the Lisitsas and against Laucius on those counterclaims.
Laucius's motion for sanctions is denied because he has not established that plaintiffs had no reasonable basis for filing their complaints or subsequent motions. The Court will defer ruling on plaintiffs' motion for a default judgment against Kogan pending an assessment of damages hearing.
The facts of this case are far from clearly presented. What follows is taken from the sparse evidentiary record presented by the parties in their respective motions for summary judgment. For plaintiffs, the evidence consists of Laucius's statement to the FBI on March 4, 2003 and Laucius's deposition, taken more than five years later, on May 22, 2008. For Laucius, the evidence consists of a promissory note given to the Lisitsas by Vladimir and Yelena Rader and a partially illegible letter from the U.S. Attorney's office dated November 10, 2003.
Laucius began his career in 1997 as an assistant at a securities brokerage, Jefferson Gersch. (Deposition of Eric Laucius, at 10) (hereinafter "Laucius Dep.") There, Laucius was introduced to Jefferson Gersch's president, Michael Kogan. (Laucius Dep. 12.) Shortly after Laucius began working, Kogan's stockbroker's license was suspended and Jefferson Gersch closed. (Federal Bureau of Investigation Record of Interview with Eric Laucius on March 4, 2003 at 2) (hereinafter "FBI Int."); (Laucius Dep. 12.) Kogan then introduced Laucius to an investor named Lev Ioussofov, whose $400,000 initial investment helped Laucius establish a brokerage, Penn Financial Group, Inc. ("PFG") (FBI Int. 3); (Laucius Dep.11-12, 29,59, 63.)
PFG and Kogan each maintained offices at 261 Old York Road in Jenkintown, Pennsylvania, PFG in suite 633 and Kogan across the hall in suite 621 (Laucius Dep. 15, 16); (FBI Int. 5.) The close physical proximity between the offices of Kogan and PFG helped to facilitate an ill-defined professional relationship. Kogan maintained direct control over at least five active accounts at PFG, including an account for "Kogan and Company" and an account for his wife, Tanya Kogan. (FBI Int. 3); (Laucius Dep. 48.) Kogan also served as a patron of PFG, feeding client referrals to the brokerage and serving as the communications link between PFG and these clients. (FBI Int. 2, 3.) One of the largest accounts referred to PFG by Kogan was Fox International, owned by Michael Lisitsa. (Id. at 4.)
PFG used software provided by its clearing broker, Fiserv Securities, Inc. ("Fiserv"), to maintain and perform transactions in its customers' accounts. (Id. at 5.) Although Laucius was aware that Kogan no longer had a stockbroker's license, (FBI Int. at 2); (Laucius Dep. 79), Laucius gave this software and the access password to Kogan so that Kogan could perform trades in PFG's client accounts (FBI Int. at 2, 3, 5,8, 10, 11.) PFG's computer technician, Souren Soumbatov, (Laucius Dep. 18), even set up a network connection to enable Kogan to access Fiserv from his office in suite 621, (FBI Int. 5, 9). Laucius never asked if Kogan had a power of attorney to trade in client accounts. (FBI Int. 3, 12.)
In addition, Laucius told the FBI he allowed Kogan to sign Laucius's name to journal entries in client accounts. (FBI Int. at 2.) When there was a problem with an account, Laucius would turn to Kogan for answers. (Id. at 1.) Because he trusted Kogan, Laucius provided him with keys to PFG's office and access to PFG's Federal Express Account. (Id. at 9.) Laucius and PFG earned a commission on each trade in one of PFG's client's accounts. (FBI Int. at 8.) Approximately 80% of Laucius's commissions came from trades in Kogan-controlled accounts (Id. at 11.) Nevertheless, according to Laucius, PFG never paid Kogan a salary. (Id. at 8, 14.)
Problems with the complex and amorphous relationship between Kogan and PFG began to emerge in 2002 when one of PFG's clients, Liliya Beyder, called for an explanation of the fact that the reported balance of her account was only ten dollars. (FBI Int. 2); (Laucius Dep. 89.) This was the first step in a series of events that led to PFG's demise. The FBI visited PFG's office in May of 2002. (FBI Int. 13) (Laucius Dep. 101.) After an investigation, Kogan was arrested and charged with mail and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343. He pleaded guilty on September 18, 2003 and was later sentenced to 87 months of imprisonment, 3 years of supervised release, restitution of $5,655,350.18, and a special assessment of $1,800. United States v. Kogan, C.R. No. 03-306 (E.D. Pa. Jan. 22, 2004); see also Kogan v. Lindsay, No. 1:CV - 06-0264, 2006 WL 1548855, at *1 (M.D. Pa. May 31, 2006). The parties dispute Laucius's involvement in the scheme that led to Kogan's arrest and conviction.
Fiserv prepared account statements for PFG. Fiserv would mail these account statements to PFG, where a secretary would place them in binders. (FBI Int. 1.) Laucius reviewed the statements and placed his initials on the first page. (Id.)
Laucius told the FBI that he was aware that Kogan changed the mailing address on certain accounts at PFG and recalled seeing account statements for Kogan clients returned as a result of bad addresses. (Id. at 7, 11.) Laucius also recalled that, sometime in early 2000, PFG received a package containing one hundred pieces of paper colored blue on the top and bottom, but white in the middle.
(FBI Int. 13.) This paper resembled the type used by Fiserv to print monthly account statements for PFG. (Id.) In his deposition, Laucius testified that he first realized false account statements were being sent to PFG's clients when Ms. Beyder and her husband came to the office to discuss the problem with their account, sometime in late 2002. (Laucius Dep. 90); (FBI Int. 3.) However, Laucius told the FBI in March, 2003, that, before the meeting with the Beyders, he knew that Ioussoufov had been sent an account statement for an account that did not exist. (FBI Int. 5-6.)
At his deposition in this case, Laucius invoked his Fifth Amendment right against self-incrimination when asked about Kogan's role in founding PFG, (Laucius Dep. 39), Kogan's use of accounts at PFG, (Id. at 25, 43, 44, 57, 79, 98), Kogan's use of PFG's office space, (Id. at 39, 40-44, 72, 74), Kogan's forgery of account statements (Id. at 56), PFG's role as Kogan's broker (Id. at 49), and Laucius's own trading activity, (Id. at 34). Laucius specifically denied that he allowed Kogan to use his signature, (Laucius Dep. 57), or to perform any trades for Fox, (Id. at 50). Laucius also denied having reviewed the terms of Fox's customer agreement, (Id. at 77), or having ever traded in Fox's account (Id. at 51). He stated that Kogan received no financial benefit from PFG. (Id. at 99.) Laucius also denied having access to two-toned paper that might have been used to forge a Fiserv account statement. (FBI Int. 7.) When confronted with letters from PFG to the Beyders about a change of address, Laucius told the FBI that the signature at the bottom of the letter was not his. (Id. 7.) Laucius explained that PFG had never had a problem with an account before the Beyders' account problem because Kogan always interfaced directly with clients. (Id. at 11.) Laucius also told the FBI that compact discs from Fiserv containing client accounts were missing from his office. (Id. at 12.)
Plaintiffs filed a Third Amended Complaint against Laucius, Kogan, and several other defendants on December 16, 2004. There are eleven claims asserted against Laucius in the Third Amended Complaint -- claims six through nine, twelve through sixteen and eighteen and nineteen. Claim six alleges fraud and misrepresentation, claim seven a breach of fiduciary duty, claim eight a violation of 15 U.S.C. § 78j(b), claim nine a violation of 15 U.S.C. § 78t, claim twelve a violation of 70 P.S. § 1-301, claim thirteen a violation of 70 P.S. § 306, claim fourteen a violation of 70 P.S. § 401, claim fifteen a violation of 70 P.S. § 403, claim sixteen a violation of 70 P.S. § 1-501, claim eighteen a violation of §10b of the Securities Exchange Act and Rule 10b-5, and claim nineteen a violation of § 20(a) of that same Act. Because some of plaintiffs' claims arise under the federal securities laws, this court has jurisdiction pursuant to 15 U.S.C. § 78aa and 28 U.S.C. §§ 1331 and 1367.
Laucius filed a motion to dismiss the claims against him on May 23, 2006. The Court granted that motion in part, dismissing claim sixteen, but denied it in all other respects by Memorandum and Order dated March 20, 2007. Shortly thereafter, on May 7, 2007, the Court granted a motion filed by Laucius's counsel to withdraw his representation. Laucius has represented himself ever since.
After the Court ruled on his motion to dismiss, Laucius submitted an Answer, Counterclaims, Cross Claims of Defendant Eric Laucius, and Answer of Cross Claims to the Third Amended Complaint in a facsimile transmission to the Court and to opposing counsel, and by mail to Kogan, on June 28, 2007. Although Laucius provided his Answer to the Court and opposing counsel, he never filed it in the Clerk's office.*fn1 Laucius's counterclaims allege that Michael and Natan Lisitsa conspired with Kogan -- whom they knew to be an unregistered broker -- to violate unspecified securities laws. Laucius charges that the Lisitsas solicited funds from investors by guaranteeing a rate of return and then took the funds solicited and turned them over to Kogan for investment. According to Laucius, this scheme, not any conduct on his part, caused any damages sustained by Fox. He seeks indemnification and contribution from the Lisitsas for any damages he is required to pay Fox.
Although not claimed in his Counterclaims, Laucius seeks compensatory and punitive damages for violations of sections 5(a), 5 (c) and 17(a) of the Exchange Act of 1933 and section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 in his motion for summary judgment. In this Memorandum, the Court addresses both Laucius's counterclaims for indemnity and contribution and his counterclaims for compensatory and punitive damages.
Laucius also asserts "counterclaims" and cross-claims against Kogan. In those cross-claims, he alleges that Kogan was a client of PFG who held himself out as a representative of PFG in order to defraud investors. Laucius seeks indemnification and contribution from Kogan for any damages he is required to pay to Fox and the Lisitsas.
Finally, Laucius asserts "counterclaims" and "cross-claims" against Marat Tsierelson ("Tsierelson"), a former PFG broker who has never been a party to this action. Laucius alleges that Tsierelson worked with Kogan to both further Kogan's scheme and to hide the scheme from Laucius. Laucius seeks indemnification and contribution for damages he is required to pay resulting from these actions.
Plaintiffs settled their claims against all defendants except Laucius and Kogan and filed a joint motion to dismiss all claims against the settling defendants on February 19, 2008. The motion was granted by Order dated March 29, 2008.
Kogan has not responded to the Third Amended Complaint. Accordingly, at plaintiffs' request, the Clerk of Court entered default against Kogan on March 9, 2009.
On March 3, 2009, plaintiffs filed a motion for default judgment against Michael Kogan and a motion for summary judgment in their favor on the claims asserted against Laucius.*fn2 Laucius responded with his own motion for summary judgment on June 2, 2009, in which he seeks summary judgment in his favor on his counterclaims, and a motion for sanctions on June 6, 2009. All of those motions are pending.
IV. STANDARD OF REVIEW -- MOTION FOR SUMMARY JUDGMENT
In considering a motion for summary judgment, "the court is required to examine the evidence of record in the light most favorable to the party opposing summary judgment, and resolve all reasonable inferences in that party's favor." Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007). After this examination, a court should grant summary judgment if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant ...