Securities Exchange Commission v. Monarch Funding Corporation

192 F.3d 295 (2nd Cir. 1999)

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Nature of the Case

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Facts

A criminal indictment was brought against Bertoli (D) for his activities related to Monarch Funding Corporation. The civil action was suspended until the criminal action was finished. D was charged with RICO violations under for violations of Section 10(b) and Rule 10b-5 by the SEC. D was also charged with conspiracy to obstruct justice, obstructing justice and racketeering by moving proceeds to the Cayman Islands and Andorra. D was convicted of the obstruction charges but acquitted of all the charges that charged predicate securities fraud violations. During the sentencing phase the judge found that D had attempted to conceal securities fraud. On appeal D's conviction was affirmed but the sentence was overturned in that it was in excess of what was permissible under the guidelines. On remand, the government moved for an enhancement of D's sentence under a different guideline that was mutually exclusive of the first guidelines that were used. In the second round, the judge found that D moved assets, induced an important witness to evade process, filed false affidavits, and shredded documents and that these activities were critical components of D's eight-year conspiracy to cover up and conceal his illegal, fraudulent trading schemes. The subsequent sentencing was affirmed by the Third Circuit. Following this, the SEC moved for summary judgment in the pending civil action under collateral estoppel in that D should be estopped from denying he violated federal securities laws based on the sentencing judge's findings. D opposed this motion. The court rejected a per se outright exclusion of the use of such findings and then found that they were valid if traditional safeguards of the collateral estoppel doctrine were present. The trial judge then found that D's sentencing proceeding was anything but the garden variety type as there were two years to prepare and voluminous submissions and two hearings were held with D present. The civil judge then ruled that D was collaterally estopped from denying liability under 10(b), 10b-5 and Section 17(a) of securities law. A final judgment was entered, and D appealed.