United States District Court, M.D. Pennsylvania
STEVEN S. BOCCHINO, Appellant,
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Appellee.
JAMES M. MUNLEY, District Judge.
Before the court for disposition is Appellant Steven S. Bocchino's appeal of Bankruptcy Judge John J. Thomas's decision issued on December 23, 2013. The matter has been fully briefed and is ripe for disposition. For the reasons stated below, the appeal will be DENIED.
In 1996, Appellant Bocchino worked as a stockbroker and general securities representative at M.A. Gillespie. His superior at the time, Americo "Ricky" Gallo, alerted Bocchino to a private subscription offering for a company known as Traderz Associates Holding, Inc. (hereinafter "Traderz") that was potentially going public. Gallo told Bocchino that he would receive a commission on any investments his clients made in Traderz. Without performing any due diligence of his own, Bocchino immediately began contacting his clients and selling them a private investment in Traderz with the pitch that much money could be made in the investment.
To secure these sales, and the concomitant commissions, Bocchino made various statements, including that a model named Niki Taylor was involved with the company, with whom the public could communicate online about fashion tips and her line of clothing. (Doc. 3, Bankruptcy Court Trial Transcript at 28-29.) He asserts that at the time he believed none of the statements were untrue. Bocchino, however, had made no investigation of whether Traderz was incorporated, had bank accounts, or even an office. He relied solely on Gallo's minimal representations. Bocchino's clients paid over $30, 000 for Traderz subscriptions, and Bocchino received over $40, 000 directly from Traderz in commissions and bonuses.
Subsequently, Bocchino received a "tip" from an associate, Daniel Coyle, regarding investments in a second company, Fargo Holdings, Inc. (hereinafter "Fargo"). Bocchino testified that he received some "documentation" from Coyle, and that he met a day trader from Fargo, though his testimony conflicted as to whether he met that trader before or after he started soliciting his clients. Despite the fact that Bocchino, again, had not conducted any of his own due diligence, he began selling the Fargo stock, telling his clients that they would make money if they invested in the company. Relying on his statements, Bocchino's clients purchased over $55, 000 worth of Fargo stock, for which Bocchino received $14, 000 in cash commissions.
Sometime thereafter, Bocchino received information that Fargo might not be a legitimate enterprise, and he then began to investigate the company. Ultimately, the principals of both Traderz and Fargo were subject to criminal judgments for illegal activities related to their respective companies. The Traderz subscriptions became worthless, and Fargo disappeared.
In the early 2000s, the Securities and Exchange Commission (hereinafter "SEC") brought civil actions in federal district court against Bocchino and others related to Traderz and Fargo. See SEC v. Goldman Lender & Co. Holdings, et al., 98-CV-7525 (JGL) (S.D.N.Y.) (regarding Traderz); SEC v. Nnebe, et al., 01-CV-5247 (KMW) (S.D.N.Y.) (regarding Fargo). As a result of default judgments in both actions, Bocchino was ordered to pay: (1) $84, 959.70 in the Traderz action, including $35, 090 in disgorgement, $14, 779.70 in prejudgment interest, and a $35, 090 civil penalty to the SEC; and (2) $94, 007.85 in the Fargo matter, including $14, 800 in disgorgement, $4, 207.85 in interest, and a $75, 000 civil penalty to the SEC.
On March 2, 2009, Bocchino filed a petition for bankruptcy under Chapter 13 of the U.S. Bankruptcy Code (Title 11 U.S.C.). The SEC filed Adversary Proceeding 5:09-ap-00267-JJT under 11 U.S.C. § 523(a)(2)(A) on July 17, 2009, objecting to the discharge of the debt owed to the SEC pursuant to the two district court judgments. The parties disputed whether Bocchino obtained the funds owed to the SEC by fraud. If he did, the debts could not be discharged. A trial was held on that issue on January 23, 2013. Bocchino and one other person testified, and exhibits, including multiple depositions, were entered into the record.
On December 23, 2013, the bankruptcy court issued an Opinion and Order ruling in favor of the SEC. (Doc. 2-6.) The court found that though Bocchino did not knowingly make any false statements in selling the Traderz and Fargo investments, his conduct was grossly reckless and he was indifferent to the truth of his statements. Therefore, Bocchino acquired the funds by fraud, and, the bankruptcy court held, § 523(a)(2)(A) applied, rendering the debt non-dischargeable. On January 6, 2014, appellant filed a motion to reconsider, which the bankruptcy court denied on February 19, 2014. Appellant filed notice of appeal to this court on March 5, 2014.
This court has jurisdiction over the instant bankruptcy appeal pursuant to 28 U.S.C. § 158(a)(1), which provides that the district courts of the United States have jurisdiction to hear appeals from final judgments, orders, and decrees of the bankruptcy courts.
Standard of Review
A district court reviews the bankruptcy court's decisions of law de novo . In re O'Brien Envtl. Energy, Inc. , 188 F.3d 116, 122 (3d Cir. 1999). The bankruptcy court's findings of fact will only be set aside if clearly erroneous. FED. R. BANKR. P. 8013 ("Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses."); In re O'Brien , 188 F.3d at 122.
Appellant asserts two issues on appeal. First, he argues that the bankruptcy court applied an incorrect standard in basing a finding of fraud (and hence non-dischargeability) on appellant's extreme and reckless indifference to the truth of his statements, rather than requiring actual knowledge of their falsity and intent to deceive. Second, appellant contends that the bankruptcy court erred in finding that ...