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Securities & Exchange Commission v. McGinnis

United States District Court, D. Vermont

February 12, 2016



Christina Reiss, Chief Judge United States District Court

Defendants Sergey Pugach, Chad C. McGinnis, and Janusz Suchowiejko (collectively, "Defendants") request a stay of this action based upon what they characterize as an imminent criminal indictment of Defendant Pugach. (Docs. 339, 352, 353.)[1] They argue that continuing to litigate this civil case will require them to reveal their defense strategies to the government in an anticipated criminal case, will allow the government to access their civil case for information that would not be available to the government in a criminal prosecution, and will compromise their Fifth Amendment rights.

Plaintiff Securities & Exchange Commission (the "SEC") opposes the motion, arguing that the possibility of an indictment is speculative and that any prejudice faced by Defendants as a result of proceeding in the instant case would be minimal. After oral argument on February 9, 2016, the court took the motion under advisement.

The SEC is represented by Dugan Bliss, Esq., Gregory A. Kasper, Esq., and James A. Scoggins, Esq. Defendant McGinnis is represented by Michael Q. English, Esq., Evan I. Cohen, Esq., Kevin M. Henry, Esq., and Lauren J. Schreur, Esq. Defendant Pugach is represented by Alan J. Sobol, Esq., Edward B. Lefbvre, Esq., Megan Youngling Carannante, Esq., and Craig S. Nolan, Esq. Defendant Suchowiejko is represented by Maryanne E. Kampmann, Esq.

I. Factual and Procedural Background.

This lawsuit concerns the SEC's allegation that Defendants violated the securities laws by engaging in insider trading related to Keurig Green Mountain ("KGM") stock. In July 2013, Defendant Pugach represents that he became aware of an investigation of his trading activities conducted by the SEC, the Department of Justice (the "DOJ"), and the Federal Bureau of Investigation. On July 24, 2013, the SEC initiated this case against Defendant McGinnis, Defendant Pugach, and Relief Defendant Bella Pugach in the District of Connecticut. On the same day, the SEC filed a motion for a temporary restraining order and preliminary injunction to freeze Defendant Pugach's and Defendant McGinnis's trading assets, and to enjoin them from future violations of securities laws. The District of Connecticut granted the motion for a temporary restraining order and scheduled a hearing for the SEC's motion for a preliminary injunction.

On October 29-31, 2013, the District of Connecticut conducted a hearing regarding the preliminary injunction, at which Defendant Pugach testified. After the hearing, but before the District of Connecticut issued a decision on the matter, the SEC and Defendant Pugach agreed to resolve the preliminary injunction issue by stipulation, which they filed with the District of Connecticut (the "Stipulation"). The Stipulation provides for the freezing of Defendant Pugach's trading assets, and the SEC's agreement not to oppose his requests to release certain assets for monthly living expenses and reasonable defense fees for the remainder of the action. In addition, the Stipulation prohibits Defendant Pugach from further violating certain securities laws.

On December 11, 2013, the District of Connecticut granted in part and denied in part the SEC's motion for a preliminary injunction. The District of Connecticut did not adopt the Stipulation, but rather concluded that certain monies should remain available for Defendants Pugach and McGinnis.

On January 7, 2014, the District of Connecticut transferred this case to the District of Vermont. Defendant Suchowiejko was subsequently joined as a defendant. On March 18, 2014, the court issued an Order adopting the Stipulation as to Defendant Pugach.

Thereafter, the parties engaged in discovery, which is nearing completion with a pretrial conference set for March 15, 2016.[2] The SEC deposed Defendants Pugach and McGinnis, who did not assert their Fifth Amendment rights.

On December 17, 2015, the DO J obtained a warrant to seize property subject to forfeiture, signed by Magistrate Judge Conroy in a miscellaneous case, authorizing the seizure of the trading account assets of Defendant Pugach, Defendant McGinnis, and Relief Defendant Bella Pugach. In support of its application for the warrant, the DOJ submitted the affidavit of Jan Kostka, a member of the DOJ Mail Fraud Team of the Postal Inspection Service. In his affidavit, Postal Inspector Kostka averred that the information contained therein "is based upon [his] personal knowledge, as well as information obtained during this investigation, directly or indirectly, from other sources and agents, including: (a) information provided by the [SEC]; (b) telephone records; (c) trading records from broker-deals; and (d) publicly available documents." (Doc. 339-8 at 3, ¶ 2.) On the basis of such information, Postal Inspector Kostka represented that "[t]here is probable cause to believe that Chad C. McGinnis, Sergey Pugach, and others perpetrated an insider trading scheme that enriched the perpetrators by more than $7 million." Id. at 4, ¶5.

According to Defendant Pugach, on December 18, 2015, the DOJ advised his counsel of the impending seizure of his trading assets. DOJ trial counsel also referenced the report of Michael Mayer, one of the SEC's experts, during that discussion, and noted that Defendant Pugach has '"real exposure, '" and that the evidence against him is '"somewhat overwhelming!;.]'" (Doc. 339-1 at 5-6.) On January 5, 2016, the DOJ filed an inventory, confirming that it had seized Defendant Pugach's, Defendant McGinnis's, and Relief Defendant Bella Pugach's trading accounts. According to Defendant Pugach, on January 13, 2016, Assistant United States Attorney Gregory Waples predicted to Defendant Pugach's counsel that the DOJ would indict Defendant Pugach in February 2016. An indictment, however, has not yet issued.

On January 15, 2016, Defendant Pugach filed the pending motion to stay the action. Defendants McGinnis and ...

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