1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SECURITIES AND EXCHANGE 10 COMMISSION, Case No. 24-cv-05823-RS
11 Plaintiff, ORDER GRANTING MOTION FOR 12 v. DEFAULT JUDGMENT
13 BERNARDO MENDIA-ALCARAZ, et al., 14 Defendants.
15 16 INTRODUCTION 17 This is a civil securities enforcement action brought by the Securities and Exchange 18 Commission (“the SEC”) against defendants Bernardo Mendia-Alcaraz and Toltec Capital LLC 19 (collectively, “defendants”) and Relief Defendants Edith F. Ramirez Cano and Fondo Toltec S de 20 RL de CV (collectively, “relief defendants”). The complaint alleges defendants engaged in 21 securities fraud, made unregistered securities offerings, and deceived investors through materially 22 false and misleading statements in violation of the Securities Act of 1933 (“Securities Act”), the 23 Securities Exchange Act of 1934 (“Exchange Act’), and the Investment Advisers Act of 1940 24 (“Advisers Act”). The SEC seeks injunctive relief, disgorgement of the proceeds of the unlawful 25 activities, and the imposition of civil monetary penalties. Neither defendants nor relief defendants 26 filed an answer to the complaint or sought relief from default. For the following reasons, the 27 SEC’s motion for default judgment will be granted. 1 BACKGROUND 2 Defendant Toltec Capital is a California limited liability company, with its principal place 3 of business in San Francisco, California. Toltec Capital described itself as “a San Francisco based 4 private equity firm focused on real estate and index fund investments.” Toltec Capital is wholly 5 owned and controlled by defendant Mendia-Alcaraz, a resident of San Francisco, who serves as its 6 managing partner and CEO. Mendia-Alcaraz has control over Toltec Capital’s bank accounts and 7 statements made by Toltec Capital, including statements in securities offering documents, 8 statements to investors, and statements to the public. Prior to his involvement with Toltec Capital, 9 Mendia-Alcaraz was held in California state detention facilities from May 2007 to July 2009 for 10 alleged financial crimes. Additionally, in February 2010, Mendia-Alcaraz pled no contest to 11 charges of check fraud and theft under California Penal Code §§ 476 and 487. Finally, Mendia- 12 Alcaraz unsuccessfully filed bankruptcy proceedings at least seven times, between August 2018 13 and December 2019. 14 Relief defendant Ramirez Cano is a resident of California who shares a residential address 15 with Mendia-Alcaraz in San Francisco. Relief defendant Fondo Toltec is a Mexican limited 16 liability company based in Mexico City, Mexico. According to Toltec Capital, Fondo Toltec is an 17 operating company of Toltec Capital for the purpose of developing real estate in Mexico. Mendia- 18 Alcaraz also serves as the CEO of Fondo Toltec. 19 The complaint avers that between December of 2019 and September of 2023, defendants 20 raised approximately $3.3 million from 41 investors through the unregistered offer and sale of 21 securities in the form of pooled investment vehicles, promissory notes, and joint venture 22 agreements (collectively, the “Toltec Funds”). Toltec Capital also guaranteed investors a full 23 return of their invested capital and, in many instances, dividend disbursements of between 21% 24 and 36.88% (depending on the Toltec Fund) at the end of their investment period. 25 Although the Toltec Funds purported to identify various investment strategies such as 26 securities trading or providing short-term financing for real estate purchases, investor proceeds 27 were often misappropriated for Ponzi-like payments to other investors or for Mendia-Alcaraz’s 1 personal expenses. Additionally, Mendia-Alcaraz transferred investor funds from Toltec Capital to 2 relief defendants, who lacked a legitimate claim to the investor funds. Consequently, Toltec 3 Capital rarely had sufficient money to cover all investors’ outstanding principal, interest, and 4 dividend payments. Defendants never returned t the investment principal to 33 investors, resulting 5 in the loss of approximately $2.2 million in the investors’ principal, not including interest or 6 dividend payments owed. 7 The complaint alleges defendants made materially false statements and misrepresentations 8 regarding not only the return of investor principal and other payments, but also about Mendia- 9 Alcaraz’s qualifications as an investment manager during the offer and sale of the Toltec Funds. 10 For example, Toltec Capital portrayed Mendia-Alcaraz as having graduated from the Goldman 11 School of Public Policy at the University of California at Berkeley, which Mendia-Alcaraz never 12 in fact attended. Additionally, defendants never informed investors of Mendia-Alcaraz’s criminal 13 history and multiple bankruptcy filings. 14 The SEC brought this action in August of 2024, alleging violations under various 15 provisions of the Securities Act, the Exchange Act, and the Advisers Act. Summons and complaint 16 were served on defendants and relief defendants by a registered process server. Neither defendants 17 nor relief defendants timely responded to the complaint. 18 In late 2024, Mendia-Alcaraz contacted SEC’s counsel by email, requesting an extension 19 of time to respond to the complaint. SEC stipulated to a 14-day extension, but defendants and 20 relief defendants never subsequently responded. After the Clerk then entered default at the SEC’s 21 request, Mendia-Alcaraz emailed SEC’s counsel, stating he would seek relief from default. 22 Neither defendants nor relief defendants has ever done so. 23 24 LEGAL STANDARD 25 Following entry of default, courts are authorized to grant default judgment at their 26 discretion. See Fed. R. Civ. P 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In 27 exercising its discretion, the factors the court may consider include: (1) the possibility of prejudice 1 to the plaintiff; (2) the merits of the plaintiff’s substantive claim; (3) the sufficiency of the 2 complaint; (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning 3 material facts; (6) whether the default was due to excusable neglect; and (7) the strong policy 4 underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool, 5 782 F.2d 1470, 1471-72 (9th Cir. 1986). In considering these factors, all factual allegations in the 6 plaintiff’s complaint are taken as true, except for those relating to damages. TeleVideo Sys., Inc. v. 7 Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). 8 9 DISCUSSION 10 A. Jurisdiction 11 A court must confirm that it has both subject matter and personal jurisdiction prior to 12 assessing the merits of a default judgment. See In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). It 13 must also “ensure the adequacy of service on the defendant.” Produce v. Cal. Harvest Healthy 14 Food Ranch Mkt. No. 11-CV-4814, 2012 WL 259575, at *2 (N.D. Cal. Jan. 27, 2012). Here, 15 federal subject matter jurisdiction exists under 28 U.S.C. § 1331 because the claims allege 16 violations of federal law. Service is also adequate based on the affidavits of the process server. 17 The remaining question is whether personal jurisdiction can be exercised over defendants and 18 relief defendants. The SEC avers Mendia-Alcaraz and Ramirez Cano resided in San Francisco 19 during the period specified in the complaint and that Toltec Capital had its principal place of 20 business in San Francisco. These facts, taken as true, are sufficient to establish general personal 21 jurisdiction over Mendia-Alcaraz, Ramirez Cano, and Toltec Capital. See Warfield v. Alaniz, 569 22 F.3d 1015, 1028-29 (9th Cir. 2009). 23 Relief defendant Fondo Toltec is a Mexican entity based in Mexico City. Accordingly, 24 there must be sufficient “minimum contacts” to exercise specific personal jurisdiction over it. See 25 Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471 (1985) (citation omitted). Because federal 26 securities laws authorize nationwide service of process, an inquiry into the exercise of specific 27 personal jurisdiction by the relevant forum is “whether the party has sufficient contacts with the 1 United States, not any particular state. Sec. Investor Prot. Corp. v. Vigman, 764 F.2d 1309, 1315 2 (9th Cir. 1985) (internal quotations omitted); see also 15 U.S.C. §§ 77v(a) and 78aa. Minimum 3 contacts are found when “the defendant has acted within any district of the United States or 4 sufficiently caused foreseeable consequences in this country.” Action Embroidery Corp. v. Atl. 5 Embroidery, Inc., 368 F.3d 1174, 1180 (9th Cir. 2004) (citation omitted). 6 Under the three-prong test established by the Ninth Circuit, specific personal jurisdiction 7 may be exercised over Fondo Toltec if: (1) Fondo Toltec purposefully availed itself of the 8 privilege of conducting activities in the forum; (2) the SEC’s claims arise out of or relate to those 9 actions; and (3) the exercise of jurisdiction is reasonable. See Schwarzenegger v. Fred Martin 10 Motor Co., 374 F.3d 797, 802 (9th Cir. 2004) (citing Lake v. Lake, 817 F.2d 1416, 1421 (9th Cir. 11 1987); see also Burger King, 471 U.S. at 476-78. Under this test, the SEC bears the burden 12 satisfying the first two prongs, at which point the burden shifts to Fondo Toltec to “present a 13 compelling case that the presence of some other considerations would render jurisdiction 14 unreasonable.” Id. 15 First, purposeful availment is met if there is evidence that a defendant “purposefully 16 availed himself of the privilege of doing business in a forum,” shown through evidence of the 17 defendant’s actions in the forum “such as executing or performing a contract there.” 18 Schwarzenegger, 374 F.3d at 802. In so doing, “a defendant thus invok[es] the benefits and 19 protections of [the forum state’s] laws” and must, as a quid pro quo, “submit to the burdens of 20 litigation in that forum.” Hanson v. Denckla, 357 U.S. 235, 253 (1958); Burger King, 471 U.S. at 21 476. Here, the SEC has met its burden of showing purposeful availment. Specifically, the 22 promissory notes executed by investors in California contained an “Investment Capital 23 Guarantee,” promising that “Toltec Capital LLC and Fondo Toltec S de RL de CV jointly and 24 severally guarantee the investment capital” of the investor. The notes further provided that “This 25 Joint Venture Agreement shall be construed and governed by the laws of the State of California 26 and . . . [a]ll obligations hereunder shall be deemed performable in the City and County of San 27 Francisco, California.” Fondo Toltec’s contractual obligations with California investors constitute 1 purposeful availment of the benefits and protections of California law because: (1) the “substance 2 of the relationship was formed” in California through Defendants’ solicitation of California 3 investors; (2) the law governing the contracts is the law of California; (3) the contract identifies 4 San Francisco as the location for the execution of the contract; and (4) the contract was ratified by 5 Fondo Toltec through its agent Mendia-Alcaraz. McGlinchy v. Shell Chemical Co., 845 F.2d 802, 6 816 (9th Cir. 1988) (citation omitted). Thus, by invoking the benefits and protections of California 7 law, Fondo Toltec must also “submit to the burdens of litigation” in California. Hansen, 357 U.S. 8 at 253. 9 Second, the SEC’s claims against Fondo Toltec as a relief defendant inarguably arise 10 directly from its contractual role in the investment scheme. Finally, there is nothing to suggest the 11 exercise of jurisdiction over Fondo Toltec is otherwise unreasonable. Accordingly, jurisdiction is 12 proper as to all defendants and relief defendants. 13 14 B. The Eitel Factors 15 With jurisdiction established, an analysis of the Eitel factors weighs in favor of granting 16 default judgment. 17 18 1. Possibility of Prejudice 19 The first factor concerns the prejudice to the SEC that would result if default judgment 20 were denied. Such prejudice would “necessarily flow[]” from a meritorious claim, “because, in the 21 absence of a default judgment, plaintiff ‘would be without other recourse for recovery’ to which it 22 is entitled.” Dr. JKL Ltd. v. HPC IT Educ. Ctr., 749 F. Supp. 2d 1038, 1048 (N.D. Cal. 2010) 23 (citation omitted). Absent default judgment, the SEC, and the public it is charged with 24 representing, will have no way to obtain the relief it seeks. Therefore, the first Eitel factor supports 25 default judgment. 26 27 1 2. Merits of Substantive Claims and Sufficiency of Complaint 2 The second and third Eitel factors examine the merits of the SEC’s substantive claims and 3 the sufficiency of the complaint, which often are analyzed together. These two factors require that 4 plaintiff’s allegations “state a claim on which the [plaintiff] may recover.” Danning v. Lavine, 572 5 F.2d 1386, 1388 (9th Cir. 1978). Accepting the SEC’s factual allegations as true, the complaint 6 adequately establishes the existence of violations of the relevant securities law and the second and 7 third Eitel factors support default judgment. 8 9 i. Claim under Sections 5(a) and (c) 10 Under Sections 5(a) and (c) of the Securities Act, 15 U.S.C. § 77e(a) and (c), it is 11 “unlawful to offer or sell a security in interstate commerce if a registration statement has not been 12 filed as to that security, unless the transaction qualifies for an exemption from registration.” SEC 13 v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1085 (9th Cir. 2010). To establish a prima facie 14 violation of Section 5, the SEC must show that “(1) no registration statement was in effect as to 15 the securities; (2) the defendant directly or indirectly sold or offered to sell securities; and (3) the 16 sale or offer was made through interstate commerce.” SEC v. Phan, 500 F.3d 895, 902 (9th Cir. 17 2007). The SEC bears the initial burden of proving defendants violated the registration provisions, 18 at which point the burden shifts to defendants to prove that an exemption applies. SEC v. Murphy, 19 626 F.2d 633, 641 (9th Cir. 1980). 20 Here, the SEC has sufficiently alleged defendants offered and sold securities in the form of 21 promissory notes and joint venture agreements without filing a registration statement with the 22 SEC. Defendants’ conduct also involved interstate commerce through the usage of the internet to 23 solicit investors. Further, because defendants failed to respond in this action, they have not met 24 their burden to prove an exemption from Section 5’s registration requirements. Accordingly, the 25 SEC has made a prima facie showing that defendants violated Sections 5(a) and (c). 26 27 1 ii. Claims under Section 17(a), Section 10(b), and Rule 10b-5 2 Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b), 15 U.S.C. § 78j(b), 3 and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, of the Exchange Act prohibit fraudulent 4 conduct “in the offer or sale of securities” or “in connection with the purchase or sale of a 5 security.” Platforms Wireless, 617 F.3d at 1092. Specifically, a Section 17(a) violation requires 6 the SEC to prove defendants, in connection with the offer or sale of a security: (1) employed any 7 device, scheme, or artifice to defraud; or (2) obtained money or property by means of any untrue 8 statement of a material fact or any omission to state a material fact necessary in order to make the 9 statements not misleading; or (3) engaged in any transaction, practice, or course of business which 10 operates or would operate as a fraud or deceit upon the purchaser. 15 U.S.C. § 77q(a). Similarly, a 11 violation Section 10(b) and Rule 10b-5 thereunder requires the SEC to show defendants “(1) made 12 a material misrepresentation or omission (2) in connection with the purchase [or] sale [of a] 13 security (3) with scienter (4) in interstate commerce.” Platforms Wireless, 617 F.3d at 1092; see 14 also 17 C.F.R. § 240.10b-5. 15 The SEC has sufficiently alleged defendants engaged in violations of the relevant statutes. 16 Specifically, the SEC has shown defendants made numerous false and misleading statements in 17 connection with the offer and sale of Toltec Capital securities including: (1) falsely guaranteeing 18 that investors would receive all of their invested capital; (2) falsely representing that investor 19 funds would only be used for investment purposes; (3) misrepresenting Mendia-Alcaraz’s 20 credentials; and (4) failing to disclose his multiple bankruptcy filings and criminal history.1 These 21 false statements and misrepresentations were material because a reasonable investor would want to 22 know that: (1) defendants never maintained funds sufficient to guarantee repayment of invested 23 funds; (2) the funds were not invested but used for personal expenses or Ponzi-like payments to 24 other investors; and (3) Mendia-Alcaraz had not attended the Goldman School of Public Policy 25
26 1 Toltec Capital is an entity wholly owned and controlled by Mendia-Alcaraz. Accordingly, Mendia-Alcaraz’s conduct and scienter are imputable to Toltec Capital. See In re ChinaCast Educ. 27 Crop. Sec. Litig., 809 F.3d 471, 475-77 (9th Cir. 2015). 1 but had repeatedly filed for bankruptcy and had a criminal history related to financial crimes. See 2 United States v. Jenkins, 633 F.3d 788, 802 (9th Cir. 2011) (citation omitted) (holding that 3 information is “material if ‘a reasonable investor would have considered it useful or significant’”). 4 Additionally, defendants’ statements also establish a high degree of scienter. Based on his 5 ownership and control of Toltec Capital, Mendia-Alcaraz either knew, or was reckless in not 6 knowing, that Toltec Capital: (1) did not have sufficient funds to guarantee investors their invested 7 capital; (2) that investor funds were used for improper purposes; and (3) that his personal history 8 was misrepresented to investors. See, e.g. SEC v. JSG Cap. Investments LLC, No. 16-CV-02814 9 2017, WL 3579570, at *5 (N.D. Cal. June 30, 2017), report and recommendation adopted, No. 10 16-CV-02814, WL 3575599 (N.D. Cal. July 28, 2017) (finding that “the alleged course of 11 conduct—including using the vast majority of funds received either for insiders’ personal benefit 12 or as Ponzi-like payments to earlier investors, as well as unfounded representations regarding . . . 13 the existence of an insurance policy—strongly supports the inference of scienter.”). Finally, the 14 interstate commerce requirement is established given defendants’ usage of the internet to solicit 15 investors. 16 17 iii. Claim under Section 206(4) and Rule 206(4)-8 18 Section 206(4) of the Advisers Act makes it unlawful for any “investment adviser…to 19 engage in any act, practice or course of business which is fraudulent, deceptive, or manipulative.” 20 15 U.S.C. § 80b-6(4). Specifically, a Section 206 violation requires the SEC to show that 21 Defendants are “investment advisers,” or a “person who, for compensation, engages in the 22 business of advising others . . . as to the advisability of investing in, purchasing, or selling 23 securities.” 15 U.S.C. § 80b-2(a)(11). An investment adviser under Section 206 includes persons 24 who manage the funds of others for compensation. See SEC v. Trabulse, 526 F.Supp.2d 1008, 25 1020 n.6 (N.D. Cal. 2007) (citation omitted). Rule 206(4)-8(a) further prohibits “any investment 26 advisor to a pooled investment vehicle to either: “(1) make any untrue statement of a material fact 27 or to omit to state a material fact necessary to make the statements made, in light of the 1 circumstances under which they were made, not misleading, to any investor or prospective 2 investor in the pooled investment vehicle; or (2) otherwise engage in any act, practice, or course of 3 business that is fraudulent, deceptive, or manipulative with respect to any investor or prospective 4 investor in the pooled investment vehicle.” 17 C.F.R. § 275.206(4)-8(a). Accordingly, a violation 5 of Rule 206(4)-8(a) under Section 206(4) also requires the SEC to show defendants are advisers to 6 a “pooled investment vehicle,” or an entity, such as a fund, that defendants created to pool money 7 from multiple investors who purchase an interest in the fund and share in profits and losses 8 proportional to their interest in the fund. See 17 C.F.R. § 275.206(4)-8(b). 9 Because defendants are alleged to have made material misrepresentations in relation to the 10 offer and sale of securities as previously discussed, a prima facie showing of a Section 206(4) and 11 Rule 206(4)-8 violation depends on whether the SEC can show they are investment advisers to a 12 pooled investment vehicle. Here, the SEC has adequately demonstrated the existence of these two 13 conditions, and consequently, violations of Section 260(4) and Rule 206(4)-8. First, defendants 14 managed funds on behalf of investors for compensation. For example, the complaint notes that 15 Toltec Capital would receive half the net profits of the S&P 500 Fund it offered as joint venture 16 principal; as the sole owner of Toltec Capital, Mendia-Alcaraz also directly benefited from the 17 compensation that Toltec Capital received. Accordingly, defendants served as investment advisers 18 under Section 206. The fact that Mendia-Alcaraz misappropriated investor funds is irrelevant to 19 this determination. See JSG Cap. Investments, WL 3579570, at *7 (defendants remained 20 investment advisers under Section 206 even if they misappropriated investor funds for improper 21 purposes). 22 Second, the funds defendants advised were pooled investment vehicles. For example, with 23 respect to the Toltec Real Estate Funds offered by Toltec Capital, defendants represented investor 24 funds would be pooled with capital from Toltec Capital for the purpose of executing the fund’s 25 investment strategy. Accordingly, the Toltec Real Estate Funds constitute a pooled investment 26 vehicle within the meaning of Rule 206(4)-8. 27 1 iv. Claim under Section 206(1) and 206(2) 2 Under Sections 206(1) and (2) of the Advisers Act, investment advisers are prohibited 3 from, “directly or indirectly,” “employ[ing] any device, scheme or artifice to defraud any client” 4 or “engag[ing] in any transaction, practice, or course of business which operates as a fraud or 5 deceit upon any client.” 15 U.S.C. § 80b-6(1) and (2); Vernazza v. SEC, 327 F.3d 851, 858 (9th 6 Cir. 2003). In essence, Sections 206 “imposes a fiduciary duty upon investment advisers to 7 exercise the utmost good faith in dealing with clients, to disclose all material facts to their clients, 8 and employ reasonable care to avoid misleading their clients.” SEC v. Sztrom, 538 F.Supp.3d 9 1050, 1056 (S.D. Cal. May 11, 2021) (citing SEC v. Cap. Gains Rsch. Bureau, Inc., 375 U.S. 180, 10 194 (1963)). 11 As discussed above, defendants served as investment advisers to the funds offered by 12 Toltec Capital. By misappropriating investor funds for Mendia-Alcaraz’s personal use or making 13 payments to other investors, they breached their fiduciary duty to their clients. Accordingly, the 14 SEC has adequately established a violation of Sections 206(1) and (2). 15 16 3. Money at Stake 17 The fourth factor “pertains to the amount of money at stake in relation to the seriousness of 18 [d]efendant’s conduct.” Although the SEC seeks over $5 million in disgorgement, interest, and 19 civil penalties, that sum is proportionate to the seriousness of the securities violations and the 20 resulting harm. Given the nature of the conduct alleged, presumed true, the civil penalties 21 assessed are appropriate to deter the violations at issue. See SEC. v. Clark, No. C 09-3423, 2010 22 WL 890247, at *2 (N.D. Cal. Mar. 8, 2010). Accordingly, while the substantial sum sought by the 23 SEC warrants caution, it does not preclude default judgment under all the circumstances here. 24 25 4. Possibility of Disputed Facts and Excusable Neglect 26 The fifth and sixth Eitel factors, concerning disputed facts and excusable neglect, weigh in 27 favor of default judgment. There is nothing suggesting significant disputes likely exist as to the 1 central and material facts about the alleged violations of the relevant securities laws. Additionally, 2 there is no indication defendants and relief defendants’ failure to participate in the litigation is due 3 to excusable neglect, particularly when the communications between the SEC’s counsel and 4 Mendia-Alcaraz clearly shows defendants and relief defendants were aware of this litigation, their 5 legal obligation to respond, and the default that was entered when they did not. 6 7 5. Resolution on the merits 8 The final Eitel factor acknowledges the general policy preference for resolution on the 9 merits, and will therefore always weigh against entry of a default judgment. Under all the 10 circumstances here, however, it is not a reason to deny the SEC’s motion. See, PepsiCo, Inc. v. 11 California Sec. Cans, 238 F. Supp.2d 1172, 1177 (C.D. Cal. Dec. 27, 2002) (A defendant’s failure 12 to appear, “makes a decision on the merits impractical, if not impossible.); Kloepping v. Fireman’s 13 Fund, No. 3:94-CV-02684, 1996 WL 75314, at *3 (N.D. Cal. Feb. 13, 1996) (“the preference to 14 decide cases on the merits does not preclude a court from granting default judgment.”) 15 16 C. Remedies 17 1. Injunctive Relief 18 The SEC seeks three forms of injunctive relief: (1) a judgment permanently enjoining 19 defendants from future violations of the securities laws allegedly violated in the complaint, (2) a 20 permanent injunction against Mendia-Alcaraz from serving as an officer or director of any 21 company that has securities registered with the SEC, and, (3) a permanent injunction against 22 Mendia-Alcaraz from participating, directly or indirectly, in the issuance, purchase, offer, or sale 23 of any securities, except for purchases or sales for his own personal accounts. 24 Section 20(b) of the Securities Act, Section 21(d)(1) of the Exchange Act, and Section 25 209(d) of the Advisers Act authorize the SEC to seek an injunction enjoining defendants from 26 future violations. See 15 U.S.C. §§ 77t(b), 78u(d)(1), 80b-9(d). To obtain such relief, the SEC 27 must establish that there is a reasonable likelihood of future violations. See Murphy, 626 F.2d at 1 655 (“The existence of past violations may give rise to an inference that there will be future 2 violations.”). In predicting the likelihood of future violations, relevant factors include: (1) the 3 degree of scienter involved; (2) the isolated or recurrent nature of the infraction; (3) the 4 defendant’s recognition of the wrongful nature of his conduct; (4) the likelihood, because of the 5 defendant’s professional occupation, that future violations might occur; and (5) the sincerity of the 6 defendant’s assurances against future violations. Id. Considering the recurrent nature of 7 defendants’ violations and the high degree of scienter involved, the SEC has adequately 8 established that future violations are likely, and that injunctive relief is warranted. See SEC v. C3 9 Int’l, Inc., et al., No. 8:21-CV-01586, 2022 WL 16814859, at *8 (C.D. Cal. Nov. 7, 2022). This 10 conclusion is buttressed by the fact that defendants’ failure to appear “precludes any assurances 11 against future violations and is evidence that [defendants] [do] not recognize the wrongful nature 12 of [their] conduct.” Id. 13 Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act authorizes a 14 court to prohibit any person who violates Section 17(a)(1) of the Securities Act or Section 10(b) of 15 the Exchange Act from serving as an officer or director of any issuer that has a class of securities 16 registered with the SEC. See 15 U.S.C. §§ 77t(e), 78u(d)(2). To obtain relief under these 17 provisions, the SEC must show that the person’s conduct demonstrates “unfitness” to serve as an 18 officer or director. See id. Relevant factors in determining the imposition of an officer and director 19 bar include “(1) the egregiousness of the underlying securities law violation; (2) the defendant’s 20 repeat offender status; (3) the defendant’s role or position when he engaged in the fraud; (4) the 21 defendant’s degree of scienter; (5) the defendant’s economic stake in the violation; and (6) the 22 likelihood that misconduct will recur.” SEC v. First Pac. Bancorp, 142 F.3d 1186, 1193 (9th Cir. 23 1998) (citation omitted). Accepting the SEC’s factual allegations as true, all of First Pac. 24 Bancorp’s enumerated factors are met. First, Mendia-Alcaraz’s conduct was egregious, given his 25 numerous false and misleading statements made to investors. Second, the conduct recurred over a 26 span of approximately four years. Third, as the owner and sole controller of Toltec Capital during 27 the alleged violations, Mendia-Alcaraz was the primary instigator and facilitator of the alleged 1 fraud. Fourth, Mendia-Alcaraz displayed a high degree of scienter through knowingly or 2 recklessly making false statements and misrepresentations to investors. Fifth, Mendia-Alcaraz 3 received direct financial benefits from his violations. Finally, as previously discussed, it appears 4 likely that Mendia-Alcaraz may commit future violations absent judicial intervention. 5 Accordingly, the imposition of an officer and director bar is warranted. 6 Finally, federal courts possess inherent equitable authority to issue a conduct-based 7 injunction not explicitly authorized by statute to prohibit Mendia-Alcaraz from participating in the 8 issuance, purchase, offer, or sale of any securities, except for purchases or sales for his own 9 personal accounts. See SEC v. Wencke, 622 F.2d 1363, 1369 (9th Cir. 1980). Such an injunction, 10 however, must be narrowly tailored to prevent future violations of federal securities laws. Toyota 11 Motor Sales, U.S.A., Inc. v. Tabari, 610 F.3d 1171, 1176 (9th Cir. 2010). As previously discussed, 12 the SEC has shown a high likelihood that Mendia-Alcaraz will engage in future violations of 13 federal securities laws and a number of courts have entered comparable injunctions against 14 similarly situated defendants. See e.g., JSG Cap. Investments, WL 3579570, at *10; SEC v. Sethi 15 Petroleum, LLC, No. 4:15-CV-338, 2015 WL 4040123, at *1 (E.D. Tex. Jul. 1, 2015). In light of 16 the nature of Mendia-Alcaraz’s alleged conduct in this case, the SEC’s requested conduct-based 17 injunction is warranted. 18 19 2. Disgorgement from Defendants 20 Courts possess both statutory authority under the Exchange Act, as well as broad equity 21 powers to order disgorgement in SEC enforcement actions. See 15 U.S.C. §§ 78u(d)(3), (d)(5), 22 (d)(7); First Pac. Bancorp, 142 F.3d at 1191. Further, “where two or more individuals or entities 23 collaborate or have a close relationship in engaging in the violations of the securities laws, they 24 [may be] held jointly and severally liable for the disgorgement of illegally obtained proceeds.” Id. 25 Because disgorgement is intended to “deprive a wrongdoer of unjust enrichment, and or deter 26 others from violating securities laws . . . ‘[t]he amount of disgorgement should include all gains 27 flowing from the illegal activities.’” Platforms Wireless, 617 F.3d at 1096 (citing First Pac. 1 Bancorp, 142 F.3d at 1191). The disgorgement amount need be “only a reasonable approximation 2 of the profits casually connected to the violation.” Id. Finally, where disgorgement is imposed, a 3 court may also impose prejudgment interest “to ensure that the wrongdoer does not profit from the 4 illegal activity.” SEC v. C3 Int’l, Inc., No. 8:21-CV-01586, 2024 WL 3465615, at *10 (C.D. Cal. 5 Jul. 17, 2024) (citing SEC v. Cross Financial Services, Inc., 908 F. Supp. 718, 734 (C.D. Cal. 6 1995). In calculating prejudgment interest, the SEC may rely on the Internal Revenue Service 7 underpayment rate set forth in 26 U.S.C § 6621(a)(2). See Platforms Wireless, 617 F.3d at 1099- 8 1100. 9 Here, the SEC seeks disgorgement from defendants, jointly and severally, in the amount of 10 $2,207,524, and prejudgment interest of $150,866. The SEC’s calculation of the appropriate 11 disgorgement is based on evidence assessed by SEC accountant Zachary Scrima. The SEC 12 contends defendants received a total of $3,341,025 in investor funds through their fraudulent 13 activities, from which $1,133,500 was paid out to investors. The SEC’s evidence thus establishes 14 $2,207,524 as a reasonable approximation of the “gains flowing from the illegal activities” and is 15 a suitable basis for disgorgement. See Platforms Wireless, 617 F.3d at 1096. 16 In conjunction with its request for disgorgement, the SEC also requests prejudgment 17 interest from October 1, 2023 (the first day of the month following the last day that investor 18 funding was received), through July 31, 2024 (the last day of the month preceding the 19 commencement of this case), in the amount of $150,866, based on the prejudgment interest rate set 20 forth at 26 U.S.C. § 6621(a)(2). The SEC’s calculations appear correct and prejudgment interest in 21 the amount of $150,866 is appropriate. 22 23 3. Disgorgement from Relief Defendants 24 In addition to ordering disgorgement from a liability defendant, a court may exercise 25 equity powers “to order disgorgement from non-violating third parties,’ or relief defendants, ‘who 26 have received proceeds of others’ violations to which the third parties have no legitimate claim.’” 27 SEC v. Beck, No. 2:22-CV-008212, 2024 WL 1626280, at *15 (quoting SEC v. World Cap. Mkt., 1 Inc., 864 F.3d 996, 1003-04 (9th Cir. 2017)). To obtain disgorgement from a relief defendant, the 2 SEC must show that the relief defendant: (1) received ill-gotten funds and (2) does not have a 3 legitimate claim to those funds. Id. A relief defendant may also be held jointly and severally liable 4 with a liability defendant for disgorgement and prejudgment interest. See id. 5 Here, the SEC seeks disgorgement from Ramirez Cano, jointly and severally liable with 6 Defendants, for disgorgement of $3,654 with prejudgment interest of $249. Based on the evidence 7 submitted by the SEC, this amount represents investor funds that Mendia-Alcaraz transferred to a 8 personal account he co-owned with Ramirez Cano and that Ramirez Cano spent. Prejudgment 9 interest was also calculated based on the method previously discussed. Because Ramirez Cano 10 received funds through fraud perpetrated by Mendia-Alcaraz and because she lacks a legitimate 11 claim to these funds, disgorgement and prejudgment interest in the amount of $3,654 and $249 is 12 appropriate. Similarly, the SEC has adequately shown relief defendant Fondo Toltec is jointly and 13 severally liable with defendants for disgorgement of $554,563, plus prejudgment interest of 14 $37,899. 15 4. Civil Monetary Penalties 16 The Securities Act, Exchange Act, and the Advisers Act authorize courts to assess civil 17 penalties for violations of those statutes and the rules thereunder. See 15 U.S.C. §§ 77t(d), 18 78u(d)(3), 80b-9(e). “The purpose of imposing monetary penalties in addition to disgorgement of 19 profits is to punish the violator as well as deter future violations of the securities laws.” JSG Cap. 20 Investments, WL 3579570, at *12 (citing SEC v. Moran, 944 F.Supp. 286, 296 (S.D.N.Y. 1996). 21 In authorizing the imposition of monetary penalties, Congress established a three-tiered system, 22 each enumerating a specific penalty amount for each violation of the securities laws, to guide 23 courts in determining the appropriate penalty amount. See 15 U.S.C. §§ 77t(d)(2), 78u(d)(3); 17 24 C.F.R. § 201.1004. Alternatively, a court may also impose a penalty up to “the gross amount of 25 pecuniary gain to [the] defendant as a result of the violation,” regardless of the tier. 15 U.S.C. §§ 26 77t(d)(2), 78u(d)(3). Within the confines of those maximum limits, the amount of the penalty is at 27 1 the discretion of the court, to be determined “‘in light of the facts and circumstances” of the case. 2 15 U.S.C. §§ 77t(d)(2)(A), 78u(d)(3)(B)(i). 3 Here, the SEC seeks the imposition of civil monetary penalties against Mendia-Alcaraz in 4 the amount of $2,207,524. The egregious nature of Mendia-Alcaraz’s conduct in this case resulted 5 in substantial losses to the investors and warrants the imposition of third-tier penalties. Mendia- 6 || Alcaraz defrauded investors over several years through numerous false and misleading statements 7 and the misappropriation of funds. Additionally, Mendia-Alcaraz’s failure to respond to the 8 complaint, despite being aware of this litigation, evinces no acceptance of responsibility nor 9 || assurances against future violations. See C3 Int’l, Inc., 2022 WL 16814859, at *8. Accordingly, 10. || the imposition of a civil penalty equal to Mendia-Alcaraz’s disgorgement amount of $2,207,524 is 11 appropriate to punish Mendia-Alcaraz and deter future violations of the securities laws.
13 CONCLUSION
3 15 For the foregoing reasons, the SEC’s motion for entry of default judgment is granted. The z 16 || SEC’s proposed form of judgment will be entered separately.
19 || ITISSO ORDERED. 20 21 Dated: December 16, 2025 22 RICHARD SEEBORG 23 Chief United States District Judge 24 25 26 27 CASE No. 24-cv-05823-RS