Securities and Exchange Commission v. Patrick Jevon Johnson

Opinion

O 1

2 3 4 5 6 7 8 United States District Court 9 Central District of California 10 11 SECURITIES AND EXCHANGE Case № 2:20-cv-08985-ODW (DFMx) COMMISSION, 12 ORDER GRANTING MOTION FOR 13 Plaintiff, ENTRY OF DEFAULT JUDGMENT AS TO DEFENDANT FRANK 14 v. EKEJIJA [76] AND 15 DENYING MOTION TO DISMISS 16 PATRICK JEVON JOHNSON, [86] CHARLES EVERETT (aka CHARLY 17 EVERETT), FRANK EKEJIJA, AND 18 NVC FUND, LLC

19 Defendants. 20 21 I. INTRODUCTION 22 The Securities and Exchange Commission (the “SEC”) brought this action 23 against Defendant Frank Ekejija and others for fraud in the connection with the 24 purchase or sale of securities, in violation of Section 10(b) of the Securities Exchange 25 Act and Rule 10b-5 thereunder. Ekejija, who is proceeding pro se, has filed numerous 26 documents in this action but no Answer, despite several extensions of time and orders 27 to do so. Upon the SEC’s request, the Clerk of the Court entered Ekejija’s default; the 28 SEC now moves for entry of default judgment against him. (See Mot. Default J. 1 Ekejija (“Motion” or “Mot.”), ECF No. 76.) On June 21, 2021, the Court heard 2 argument from the parties on the Motion. (Min. Mot. Hr’g, ECF No. 85.) The Court 3 ordered Ekejija to file an Answer within seven days or default judgment would be 4 entered against him. (Id.) Ekejija has not filed an Answer. Accordingly, for the 5 reasons that follow, the Court GRANTS the SEC’s Motion, in part, and enters default 6 judgment against Defendant Ekejija. 7 II. BACKGROUND 8 On September 30, 2020, the SEC initiated this federal securities fraud action 9 against Defendants Patrick Jevon Johnson, Charles Everett, Ekejija, and NVC Fund, 10 LLC (Ekejija’s company), alleging they engaged in a two-part scheme to manipulate 11 the stock market. (Compl. ¶¶ 4–11, ECF No. 1.) The SEC alleges Johnson, Ekejija, 12 and NVC Fund engaged in the second part of the scheme, making false and 13 misleading public statements to pump the stock of three microcap1 issuers controlled 14 by Johnson. (Id. ¶¶ 8–10, 183–268; Mot. 1, 2–4.) In a series of six press releases and 15 an SEC filing, Johnson and the microcap issuers made false and misleading 16 statements, including that the issuers acquired $700 million in assets from NVC Fund, 17 and that NVC Fund’s parent, NVC Fund Holding Trust, owned “trillions” of dollars in 18 assets. (Mot. 3.) Ekejija knowingly reviewed and approved these false and 19 misleading statements, which claimed the valuations had been audited and that NVC 20 Fund Holding Trust’s valuation and credit rating were legitimate; however, no audit 21 had been conducted and the valuations were unsupported. (Id. at 3–4.) 22 A. Relevant Procedural History 23 On October 3, 2020, the SEC served Ekejija. (Am. POS Ekejija, ECF No. 48.) 24 His Answer was due by October 25, 2020. On October 28, 2020, the Court received 25

26 1 A microcap is a stock with a market cap of between $50 million and $300 million. They provide less publicly available information, are more vulnerable to investment fraud schemes, and are among 27 the riskiest investments. U.S. SEC, Microcap Stock: A Guide for Investors, 28 https://www.sec.gov/reportspubs/investor-publications/investorpubsmicrocapstockhtm.html#WhatIs (Sept. 18, 2013). 1 Ekejija’s request for a ninety-day extension of time to respond to the Complaint. 2 (Req. Extension, ECF No. 18.) The SEC did not oppose a thirty-day extension. 3 (Non-Opp’n, ECF No. 20.) The Court granted Ekejija until November 25, 2020, to 4 respond to the Complaint. (Min. Order, ECF No. 21.) 5 On December 1, 2020, Ekejija filed a document entitled “Affidavit,” which did 6 not respond to the SEC’s allegations. (Aff., ECF No. 29.) The SEC moved to strike 7 the Affidavit, (Mot. Strike, ECF No. 39), and Ekejija did not oppose. On January 25, 8 2021, the Court granted the unopposed motion to strike. (Order Granting Mot. Strike, 9 ECF No. 44.) The Court ordered Ekejija to file an Answer by February 15, 2021, 10 cautioned him that failure may subject him to default and/or default judgment, and 11 advised him of resources available through the Federal Pro Se Clinic. (Id. at 3.) 12 When Ekejija did not timely Answer, on February 22, 2021, the SEC requested 13 that his default be entered. (Am. Req. Default Ekejija, ECF No. 50.) The Clerk 14 entered Ekejija’s default the same day. (Default Ekejija, ECF No. 51.) The next day, 15 Ekejija filed several documents, including a “Claim” for “Trespass” against the SEC 16 and its attorneys, (ECF Nos. 55–56); a series of forms for “Violation Warnings,” (ECF 17 No. 57); and Interrogatories (ECF No. 58)—but not a responsive pleading. As his 18 default had been entered, on March 2, 2021, the filings were stricken and the Court 19 advised Ekejija that he must first move to set aside the default before he may appear. 20 (Min. Order, ECF No. 61.) 21 B. The Current Motion 22 On May 21, 2021, the SEC filed the instant motion for entry of default 23 judgment against Ekejija, with a motion hearing noticed on June 21, 2021. (See Mot.) 24 Any opposition was due by May 28, 2021. See C.D. Cal. L.R. 7-9; Fed. R. Civ. 25 P. 6(a)(2). On May 30, 2021, Ekejija filed several documents: “Motion to Deny 26 Proposed Default Judgment Due to Several Violations by the SEC of Federal Rules 27 and the UCC’s [sic],” (ECF No. 79); “Memorandum of Authorities,” (ECF No. 80); 28 and “Interrogatory Discovery,” (ECF No. 78). As these documents again did not 1 comply with myriad Local Rules, on June 2, 2021, the Court struck them and again 2 advised regarding the resources available through the Federal Pro Se Clinic. (Min. 3 Order, ECF No. 82.) Ekejija filed versions of the same documents on June 17, 2021, 4 which were similarly rejected. (See Notice Doc. Discrepancy, ECF No. 84.) 5 In the rejected and stricken filings, and again at the hearing on the Motion, 6 Ekejija argued that the SEC, and its attorneys personally, are committing fraud and 7 trespass against him and the court, and that the SEC has no contract with him and was 8 not damaged. (Id., Attach. 1 (“Re: Pl. SEC’s Mot.”) 1–2 (rejected).) Regarding 9 retaining legal counsel, he wrote, “The B.A.R. attorneys have repeated demands for 10 me to hire an attorney subject to the [Local Rules], but every one of those attorneys 11 are foreign agents, specifically, foreign to the United States of America Republic. I do 12 not wish to entrap a foreign agent into a treasonous situation.” (Id. at 6 (rejected).) 13 At the hearing on this Motion on June 21, 2021, the Court ordered Ekejija to 14 file an Answer within seven days of the hearing or default judgment would be entered 15 against him. (See Min. Mot. Hr’g.) On June 28, 2021, Ekejija instead filed a Motion 16 to Dismiss asserting the same arguments as above. (Mot. Dismiss, ECF No. 86.) 17 III. LEGAL STANDARD 18 Federal Rule of Civil Procedure (“FRCP”) 55(b) authorizes a district court to 19 grant a default judgment after the Clerk enters default under FRCP 55(a). If the 20 plaintiff has satisfied certain procedural requirements, a district court has discretion to 21 enter default judgment, based on consideration of the “Eitel factors.” Aldabe v. 22 Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); Eitel v. McCool, 782 F.2d 1470, 1471– 23 72 (9th Cir. 1986). Generally, after the Clerk enters default, the defendant’s liability 24 is conclusively established, and the well-pleaded factual allegations in the complaint 25 are accepted as true, except those pertaining to damages. TeleVideo Sys., Inc. v. 26 Heidenthal, 826 F.2d 915, 917–18 (9th Cir. 1987) (per curiam) (quoting Geddes v. 27 United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977)). When an action involves 28 multiple defendants, the court may enter a final judgment as to fewer than all 1 defendants “only if the court expressly determines that there is no just reason for 2 delay.” Fed. R. Civ. P. 54(b). 3 IV. ANALYSIS 4 The SEC requests that the Court enter default judgment against Ekejija, grant a 5 permanent injunction prohibiting future securities violations, and order him to pay a 6 $195,047 civil penalty. (Mot. 1–2.) The record before the Court demonstrates default 7 judgment is appropriate and there is no just reason for delay. 8 A. Procedural Requirements 9 Local Rules require the party seeking entry of default judgment to establish: 10 (1) when and against which party default was entered; (2) identification of the 11 pleading to which default was entered; (3) whether the defaulting party is a minor or 12 incompetent person; (4) that the Servicemembers Civil Relief Act, 50 U.S.C. § 3931, 13 does not apply; and that (5) the defaulting party was properly served with notice, if 14 required under Rule 55(b)(2). C.D. Cal. L.R. 55-1. The SEC has submitted a 15 declaration that satisfies these procedural requirements. (See Decl. of Michael R. Sew 16 Hoy ¶¶ 2, 3, 13–16, ECF No. 76-2.) 17 B. The Factors 18 In determining whether entry of default judgment is appropriate, courts consider 19 the Eitel factors: (1) the possibility of prejudice to the plaintiff, (2) the merits of the 20 plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of 21 money at stake in the action, (5) the possibility of a dispute concerning material facts, 22 (6) whether the default was due to excusable neglect, and (7) the strong policy 23 underlying the FRCP favoring decisions on the merits. Eitel, 782 F.2d at 1471–72. 24 First, the SEC would suffer prejudice absent default judgment because it would 25 be without other recourse for relief against Ekejija. See PepsiCo, Inc., v. Cal. Sec. 26 Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal 2002) (finding the possibility of 27 prejudice exists where plaintiffs would likely be without other recourse). The second 28 and third Eitel factors also favor default judgment, as the SEC alleges facts sufficient 1 to establish that Ekejija violated Section 10(b) and Rule 10b-5. Id. at 1175 2 (discussing that the second and third factors require a plaintiff to state a claim on 3 which the plaintiff may recover); (see Mot. 8–11). 4 In contrast, the fourth Eitel factor does not weigh in favor of default judgment. 5 This factor requires that the sum of money at stake be proportionate to the harm 6 alleged, Landstar Ranger, Inc. v. Parth Enters., Inc., 725 F. Supp. 2d 916, 921 7 (C.D. Cal. 2010), but the SEC fails to explain how the $195,047 civil penalty is 8 “commensurate with the seriousness of Ekejija’s misconduct,” (see Mot. 11). 9 However, the fifth and sixth factors, which overlap in this case, favor default 10 judgment. Ekejija’s refusal to Answer the Complaint or comply with this Court’s 11 orders reduces the possibility of a material factual dispute and eliminates the 12 possibility that the default was the result of excusable neglect. The Court has granted 13 several extensions of time for Ekejija to respond to the Complaint; he has not met one 14 deadline. At the hearing on this Motion—which occurred more than six months after 15 Ekejija’s response was first due—the Court very clearly ordered Ekejija to file, within 16 seven days, a “document labeled Answer to Complaint” that addressed each and every 17 paragraph in the complaint with “admit, deny, or lack sufficient information to admit 18 or deny.” Ekejija did not do so. Thus, there remains no genuine possibility of a 19 dispute on the material facts or that the default is the result of excusable neglect. 20 Finally, the seventh Eitel factor weighs against default judgment, as “[c]ases 21 should be decided upon their merits whenever reasonably possible.” Eitel, 782 F.2d 22 at 1472. However, Ekejija’s refusal to Answer the Complaint “makes a decision on 23 the merits impractical, if not impossible.” See PepsiCo, 238 F. Supp. 2d at 1177. 24 Therefore, the seventh factor does not preclude default judgment. See id. 25 On balance, the Eitel factors favor entry of default judgment. 26 C. Rule 54(b)—No Just Reason for Delay 27 Where multiple parties are involved, “the court may direct entry of a final 28 judgment as to one or more, but fewer than all, claims or parties only if the court 1 expressly determines that there is no just reason for delay.” Fed. R. Civ. P. 54(b). In 2 such cases, “default judgment should not be entered when the remaining defendants 3 who are litigating the action are ‘similarly situated, even if not jointly and severally 4 liable,’ since it would be ‘incongruous’ to enter judgment against a defaulting 5 defendant if the answering defendant ultimately shows that the plaintiff[’]s claim 6 lacks merit.” Lopez v. Eng, No. LACV 18-10022 JAK (RAOx), 2020 WL 8413525, 7 at *1 (C.D. Cal. Oct. 9, 2020) (quoting In re First T.D. & Inv., Inc., 253 F.3d 520, 8 532–33 (9th Cir. 2001)). 9 The SEC establishes there is no just reason to delay entry of default judgment 10 against Ekejija. Ekejija, NVC Fund, and Johnson are similarly situated to the extent 11 the SEC asserts they committed securities fraud via the scheme to falsely pump the 12 issuers’ stock and, while Johnson has answered the Complaint and asserted defenses, 13 NVC Fund and Ekejija have both defaulted. (See Johnson Answer, ECF No. 37; 14 Default NVC Fund, ECF No. 35; Default Ekejija.) However, as relevant here, the 15 factual allegations and legal issues differ between Ekejija and Johnson in material 16 aspects. Ekejija sourced and obtained the financial review and credit report 17 underlying the false and misleading public statements; he also reviewed and approved 18 the public statements despite knowing them to be false and material. In contrast, 19 Johnson made the public statements Ekejija approved and he does not deny they were 20 false; however, he does deny that he knew of the falsity. (See, e.g., Johnson Answer 21 ¶ 57.) If Johnson proves he lacked that knowledge, the Court could simultaneously 22 find Johnson not liable and Ekejija liable for violating Section 10(b) or Rule 10b-5. 23 Thus, a “uniform” finding of liability is not required in this case and the risk of 24 inconsistent judgments is not sufficiently extreme to bar entry of default judgment. 25 See j2 Global Inc. v. Fax87, No. 13-05353 DDP (AJWx), 2016 WL 7260588, at *3 26 (C.D. Cal. Dec. 15, 2016) (citing Shanghai Automation Instrument Co. v. Kuei, 194 F. 27 Supp. 2d 995, 1008 (N.D. Cal. 2001)). Accordingly, the Court “concludes there is no 28 just reason for delaying entry of final judgment against” Ekejija. See id. 1 D. Permanent Injunction & Civil Penalty 2 The SEC requests that the Court enter a permanent injunction against Ekejija 3 preventing him from violating Section 10(b) and Rule 10b-5 and order him to pay a 4 $195,047 civil penalty. (Mot. 13–16.) 5 To obtain a permanent injunction against Ekejija, the SEC must establish “a 6 reasonable likelihood of future violations of the securities laws.” SEC v. Murphy, 7 626 F.2d 633, 655 (9th Cir. 1980); see also 15 U.S.C. §§ 77t(b), 78u(d). “In 8 predicting the likelihood of future violations, a court must assess the totality of the 9 circumstances surrounding the defendant and his violations.” Murphy, 626 F.2d 10 at 655. Courts consider the “Murphy factors”: (1) the degree of scienter involved, 11 (2) the isolated or recurrent nature of the misconduct, (3) the defendant’s recognition 12 of the wrongful nature of the conduct, (4) the likelihood that, because of the 13 defendant’s occupation, future violations may occur, and (5) the sincerity of the 14 defendant’s assurances (if any) against future violations. See id. Similarly, civil 15 penalties are also imposed to deter the wrongdoer from comparable conduct in the 16 future, so courts frequently apply the Murphy factors when assessing civil penalties as 17 well. See SEC v. CMKM Diamonds, Inc., 635 F. Supp. 2d 1185, 1192 (D. Nev. 2009); 18 SEC v. Wayland, No. SACV 17-01156-AG (DFMx), 2019 WL 2620669, at *8 19 (C.D. Cal. Apr. 8, 2019). 20 The totality of the circumstances here supports an injunction. The SEC’s 21 allegations establish Ekejija had a substantial degree of scienter, as he sourced and 22 obtained the information underlying the false statements and knowingly reviewed and 23 approved them. However, although Ekejija approved waves of false public 24 statements, all the statements were part of a single scheme, which supports isolated, 25 not recurrent, misconduct. Even so, Ekejija vigorously refuses to recognize the 26 wrongful nature of his conduct, making it likely to recur, particularly in light of his 27 ownership and control of NVC Fund. Finally, as he refuses to Answer the Complaint, 28 Ekejija offers no assurances against future violations. Considering all of the above, 1 || the Murphy factors suggest that future violations of the securities laws are likely and 2 || support imposition of a permanent injunction. 3 As to the civil penalty, however, the SEC fails to support its request. The 4|| Exchange Act and the Securities Act limit a penalty to the greater of either a specific 5 || statutory amount or “the gross amount of pecuniary gain to such defendant as a result 6 || of the violation.” 15 U.S.C. §§ 78u(d)(3)(B), 77t(d)(2).. The SEC fails to tie the 7 || requested civil penalty to a specific statute or Ekejija’s pecuniary gain; indeed, the 8 || requested figure, $195,047, seems plucked from thin air. (See Mot. 15.) As the 9 || requested civil penalty is not supported, the Court denies the SEC’s Motion as to the 10 || civil penalty. 11 Vv. CONCLUSION 12 For the reasons discussed above, the Court GRANTS in part the SEC’s Motion 13 | for Default Judgment. (ECF No. 76.) Consequently, Ekejija’s just-filed motion to 14 | dismiss is DENIED as moot. (ECF No. 86.) The Court will issue judgment. 15 16 IT IS SO ORDERED. 17 18 July 2, 2021 ss 19 fy Gécdli 1 OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE

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