1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 22-cv-1483-AJB-DEB COMMISSION, 12 ORDER: 13 Plaintiff, (1) GRANTING THE UNITED 14 v. STATES’ MOTION TO INTERVENE 15 AND JOINDER IN DEFENDANT DAVID STEPHENS, DONALD LINN DANKS’ MOTION TO STAY 16 DANKS, JONATHAN DESTLER, and PROCEEDINGS and 17 ROBERT LAZERUS, (2) GRANTING DEFENDANT 18 Defendants, and DANKS’ MOTION TO STAY TO 19 STAY PROCEEDINGS PENDING DANIEL SOLOMITA and 8198381 RESOLUTION OF RELATED 20 Canada, Inc., CRIMINAL CASE 21 Relief Defendants. (Doc. Nos. 11, 21) 22
23 24 25 I. BACKGROUND 26 This civil case is an enforcement action filed by the Securities and Exchange 27 Commission (“SEC”) against Donald Linn Danks (“Danks”), David Stephens 28 (“Stephens”), Jonathan Destler (“Destler”), and Robert Lazerus (“Lazerus”) (collectively, 1 “Defendants”) for alleged violations of several antifraud provisions of the Securities Act 2 of 1933 and the Securities Exchange Act of 1934. (Doc. No. 1.) 3 According to the Complaint, Danks, Stephens, and Destler engaged in a deceptive 4 scheme to sell publicly traded stock in Loop Industries, Inc. (“Loop”), while concealing 5 their ownership of the stock and connections with the company, and Lazerus worked with 6 the group to further the scheme by helping to increase demand for Loop stock by promoting 7 it and brokering sales to a number of investors at the same time the group was covertly 8 selling the stock. (Id. at 2–3.) The SEC alleges that Defendants generated millions of 9 dollars in proceeds from fraudulently selling the Loop stock and seeks injunctive relief 10 barring Defendants from further violations, professional bars, disgorgement of unlawful 11 gains, and civil penalties. (Id. at 3–4.) The SEC also seeks relief from Daniel Solomita and 12 8198381 Canada, Inc. (collectively, “Relief Defendants”), who are alleged to have received 13 ill-gotten gains from Defendants’ unlawful acts. (Id. at 4.) 14 In November 2022, the United States (“Government”) filed a grand jury indictment 15 against Defendants that overlaps with the instant SEC case. That criminal case is pending 16 in this District. See United States v. Stephens, et al., 22-cr-2701-BAS (S.D. Cal. 2022). The 17 indictment alleges that Stephens, Danks, Destler, and Lazerus conspired to commit 18 securities fraud, committed securities fraud, and laundered money in connection with their 19 dealing in Loop stock. 20 Before the Court are two motions: (1) Danks’ motion to stay proceedings pending 21 resolution of the related criminal case; and (2) the Government’s motion to intervene in 22 this SEC case and joinder in Danks’ motion to stay proceedings. (Doc. Nos. 11, 21.) There 23 are no oppositions to either motion, and the time for such oppositions has passed.1 For the 24 reasons set forth below, the Court GRANTS the motions. 25 // 26
27 1 Defendants Stephens, Drester, and Lazerus have not entered an appearance in this action. 28 Relief Defendants have made an appearance and filed no opposition. 1 II. MOTION TO INTERVENE 2 The Government moves to intervene in this SEC case to join in Danks’ motion to 3 stay proceedings pending resolution of the related criminal case. (Doc. No. 21.) “On timely 4 motion, the court may permit anyone to intervene who . . . has a claim or defense that shares 5 with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b)(1). “In 6 exercising its discretion, the court must consider whether the intervention will unduly delay 7 or prejudice the adjudication of the original parties’ rights.” Fed. R. Civ. P. 24(b)(3). An 8 applicant seeking permissive intervene “must prove that it meets three threshold 9 requirements: (1) it shares a common question of law or fact with the main action; (2) its 10 motion is timely; and (3) the court has an independent basis for jurisdiction over the 11 applicant’s claims.” Donnelly v. Glickman, 159 F.3d 405, 412 (9th Cir. 1998). The court 12 retains “broad discretion” to permit or deny intervention. Perry v. Schwarzenegger, 630 13 F.3d 898, 905 (9th Cir. 2011). 14 Here, the threshold requirements are satisfied. See Donnelly, 159 F.3d at 412. First, 15 the civil and criminal cases arise from the same alleged wrongdoing in connection with 16 Loop stock, and both assert securities fraud based on the same scheme. Thus, the two 17 actions share common questions of law and fact. Second, this action is in its early stages. 18 The matter remains open for pleadings, and an early neutral evaluation conference has not 19 been set. The Court therefore does not find the motion to intervene untimely. Third, the 20 independent jurisdictional grounds requirement does not apply here because the 21 Government is not seeking intervention to raise new claims. See Freedom from Religion 22 Found., Inc. v. Geithner, 644 F.3d 836, 844 (9th Cir. 2011) (clarifying “that the 23 independent jurisdictional grounds requirement does not apply to proposed intervenors in 24 federal-question cases when the proposed intervenor is not raising new claims.”). 25 Lastly, permitting intervention would not unduly delay or prejudice the parties’ 26 rights. The Government seeks intervention solely to join in an already pending motion to 27 stay, and the SEC filed no opposition. Accordingly, for the foregoing reasons, the Court 28 1 GRANTS the Government’s motion to intervene and joinder in Danks’ motion to stay. 2 (Doc. No. 21.) 3 III. MOTION TO STAY 4 Turning to the motion to stay, Danks seeks a stay of this SEC enforcement action 5 pending the resolution of the criminal case. (Doc. No. 11.) A court has discretion to stay 6 civil proceedings “when the interests of justice seem to require such action.” Keating v. 7 Off. of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995) (internal alterations and 8 quotations omitted). In deciding whether to stay civil proceedings in the face of a parallel 9 criminal proceeding, the court considers “the particular circumstances and competing 10 interests involved in the case,” including “the extent to which the defendant’s fifth 11 amendment rights are implicated.” Id. (citation omitted). Courts also generally consider the 12 following factors: 13 (1) the interest of the plaintiffs in proceeding expeditiously with this litigation 14 or any particular aspect of it, and the potential prejudice to plaintiffs of a delay; 15 (2) the burden which any particular aspect of the proceedings may impose on defendants; (3) the convenience of the court in the management of its cases, 16 and the efficient use of judicial resources; (4) the interests of persons not 17 parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation. 18 19 Id. at 325. 20 Here, the Court finds that the parallel proceedings clearly implicate Danks’ and his 21 co-defendants’ Fifth Amendment rights. There is no dispute that both actions implicate the 22 same set of operative facts and civil discovery would place Defendants in a difficult 23 dilemma. Danks explains that because the criminal indictment and civil complaint contain 24 virtually identical allegations, his answer to the civil complaint and responses to civil 25 discovery could compel him to provide information he would otherwise not provide given 26 his pending indictment.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 22-cv-1483-AJB-DEB COMMISSION, 12 ORDER: 13 Plaintiff, (1) GRANTING THE UNITED 14 v. STATES’ MOTION TO INTERVENE 15 AND JOINDER IN DEFENDANT DAVID STEPHENS, DONALD LINN DANKS’ MOTION TO STAY 16 DANKS, JONATHAN DESTLER, and PROCEEDINGS and 17 ROBERT LAZERUS, (2) GRANTING DEFENDANT 18 Defendants, and DANKS’ MOTION TO STAY TO 19 STAY PROCEEDINGS PENDING DANIEL SOLOMITA and 8198381 RESOLUTION OF RELATED 20 Canada, Inc., CRIMINAL CASE 21 Relief Defendants. (Doc. Nos. 11, 21) 22
23 24 25 I. BACKGROUND 26 This civil case is an enforcement action filed by the Securities and Exchange 27 Commission (“SEC”) against Donald Linn Danks (“Danks”), David Stephens 28 (“Stephens”), Jonathan Destler (“Destler”), and Robert Lazerus (“Lazerus”) (collectively, 1 “Defendants”) for alleged violations of several antifraud provisions of the Securities Act 2 of 1933 and the Securities Exchange Act of 1934. (Doc. No. 1.) 3 According to the Complaint, Danks, Stephens, and Destler engaged in a deceptive 4 scheme to sell publicly traded stock in Loop Industries, Inc. (“Loop”), while concealing 5 their ownership of the stock and connections with the company, and Lazerus worked with 6 the group to further the scheme by helping to increase demand for Loop stock by promoting 7 it and brokering sales to a number of investors at the same time the group was covertly 8 selling the stock. (Id. at 2–3.) The SEC alleges that Defendants generated millions of 9 dollars in proceeds from fraudulently selling the Loop stock and seeks injunctive relief 10 barring Defendants from further violations, professional bars, disgorgement of unlawful 11 gains, and civil penalties. (Id. at 3–4.) The SEC also seeks relief from Daniel Solomita and 12 8198381 Canada, Inc. (collectively, “Relief Defendants”), who are alleged to have received 13 ill-gotten gains from Defendants’ unlawful acts. (Id. at 4.) 14 In November 2022, the United States (“Government”) filed a grand jury indictment 15 against Defendants that overlaps with the instant SEC case. That criminal case is pending 16 in this District. See United States v. Stephens, et al., 22-cr-2701-BAS (S.D. Cal. 2022). The 17 indictment alleges that Stephens, Danks, Destler, and Lazerus conspired to commit 18 securities fraud, committed securities fraud, and laundered money in connection with their 19 dealing in Loop stock. 20 Before the Court are two motions: (1) Danks’ motion to stay proceedings pending 21 resolution of the related criminal case; and (2) the Government’s motion to intervene in 22 this SEC case and joinder in Danks’ motion to stay proceedings. (Doc. Nos. 11, 21.) There 23 are no oppositions to either motion, and the time for such oppositions has passed.1 For the 24 reasons set forth below, the Court GRANTS the motions. 25 // 26
27 1 Defendants Stephens, Drester, and Lazerus have not entered an appearance in this action. 28 Relief Defendants have made an appearance and filed no opposition. 1 II. MOTION TO INTERVENE 2 The Government moves to intervene in this SEC case to join in Danks’ motion to 3 stay proceedings pending resolution of the related criminal case. (Doc. No. 21.) “On timely 4 motion, the court may permit anyone to intervene who . . . has a claim or defense that shares 5 with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b)(1). “In 6 exercising its discretion, the court must consider whether the intervention will unduly delay 7 or prejudice the adjudication of the original parties’ rights.” Fed. R. Civ. P. 24(b)(3). An 8 applicant seeking permissive intervene “must prove that it meets three threshold 9 requirements: (1) it shares a common question of law or fact with the main action; (2) its 10 motion is timely; and (3) the court has an independent basis for jurisdiction over the 11 applicant’s claims.” Donnelly v. Glickman, 159 F.3d 405, 412 (9th Cir. 1998). The court 12 retains “broad discretion” to permit or deny intervention. Perry v. Schwarzenegger, 630 13 F.3d 898, 905 (9th Cir. 2011). 14 Here, the threshold requirements are satisfied. See Donnelly, 159 F.3d at 412. First, 15 the civil and criminal cases arise from the same alleged wrongdoing in connection with 16 Loop stock, and both assert securities fraud based on the same scheme. Thus, the two 17 actions share common questions of law and fact. Second, this action is in its early stages. 18 The matter remains open for pleadings, and an early neutral evaluation conference has not 19 been set. The Court therefore does not find the motion to intervene untimely. Third, the 20 independent jurisdictional grounds requirement does not apply here because the 21 Government is not seeking intervention to raise new claims. See Freedom from Religion 22 Found., Inc. v. Geithner, 644 F.3d 836, 844 (9th Cir. 2011) (clarifying “that the 23 independent jurisdictional grounds requirement does not apply to proposed intervenors in 24 federal-question cases when the proposed intervenor is not raising new claims.”). 25 Lastly, permitting intervention would not unduly delay or prejudice the parties’ 26 rights. The Government seeks intervention solely to join in an already pending motion to 27 stay, and the SEC filed no opposition. Accordingly, for the foregoing reasons, the Court 28 1 GRANTS the Government’s motion to intervene and joinder in Danks’ motion to stay. 2 (Doc. No. 21.) 3 III. MOTION TO STAY 4 Turning to the motion to stay, Danks seeks a stay of this SEC enforcement action 5 pending the resolution of the criminal case. (Doc. No. 11.) A court has discretion to stay 6 civil proceedings “when the interests of justice seem to require such action.” Keating v. 7 Off. of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995) (internal alterations and 8 quotations omitted). In deciding whether to stay civil proceedings in the face of a parallel 9 criminal proceeding, the court considers “the particular circumstances and competing 10 interests involved in the case,” including “the extent to which the defendant’s fifth 11 amendment rights are implicated.” Id. (citation omitted). Courts also generally consider the 12 following factors: 13 (1) the interest of the plaintiffs in proceeding expeditiously with this litigation 14 or any particular aspect of it, and the potential prejudice to plaintiffs of a delay; 15 (2) the burden which any particular aspect of the proceedings may impose on defendants; (3) the convenience of the court in the management of its cases, 16 and the efficient use of judicial resources; (4) the interests of persons not 17 parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation. 18 19 Id. at 325. 20 Here, the Court finds that the parallel proceedings clearly implicate Danks’ and his 21 co-defendants’ Fifth Amendment rights. There is no dispute that both actions implicate the 22 same set of operative facts and civil discovery would place Defendants in a difficult 23 dilemma. Danks explains that because the criminal indictment and civil complaint contain 24 virtually identical allegations, his answer to the civil complaint and responses to civil 25 discovery could compel him to provide information he would otherwise not provide given 26 his pending indictment. Danks also states that should the SEC seek to compel his deposition 27 in the discovery process, he would invoke his constitutional right against self-incrimination 28 until the criminal case is resolved. Moreover, as the Government points out, invocation of 1 the privilege may result in severe consequences for Defendants as an adverse inference 2 may attach to silence in civil proceedings. See United States v. Solano-Godines, 120 F.3d 3 957, 962 (9th Cir. 1997) (explaining that in civil proceedings, “the Fifth Amendment does 4 not forbid fact finders from drawing adverse inferences against a party who refuses to 5 testify”). Defendants therefore have a significant interest in having the SEC case stayed. 6 With respect to the SEC’s interests, it does not appear that it would be unduly 7 prejudiced by a delay of its case, and it filed no opposition to contend otherwise. The 8 Government points out that absent a stay, Defendants could take advantage of the full range 9 of discovery available in civil cases while simultaneously resisting the SEC’s discovery 10 demand by, among other things, asserting their Fifth Amendment rights. As previously 11 mentioned, Danks has made clear that if he is compelled to answer the civil complaint and 12 participate in the discovery process, he would be invoking his constitutional right against 13 self-incrimination until the criminal case is resolved. Proceeding with discovery is thus 14 unlikely to meaningfully further the SEC’s litigation. 15 Considering the myriad of discovery disputes that are likely to arise due to this case’s 16 clear implication of Defendants’ Fifth Amendment rights, the Court does not find it in the 17 best interest of the parties or judicial resources to deny the unopposed motion to stay. 18 Judicial efficiency counsels in favor of a stay in this case. 19 As to the Government’s interests, the Government argues it will suffer irreparable 20 prejudice if Defendants are permitted to obtain broad civil discovery prior to the conclusion 21 of the criminal proceeding. In the Government’s view, allowing Defendants to take 22 depositions, serve interrogatories, and issue third party subpoenas would provide them with 23 information not otherwise discoverable in the criminal case and thereby hamper the 24 Government’s ability to conduct an orderly investigation and prosecution. No party 25 challenges the Government’s assertions. Accordingly, the Government has made a 26 sufficient showing prejudice in the absence of a stay 27 Finally, the Court finds that issuing a stay would not undermine the public’s interest 28 in preventing corporate securities fraud. See S.E.C. v. Nicholas, 569 F. Supp. 2d 1065, 1072 1 ||(C.D. Cal. 2008) (“The public has a vital interest in the integrity of public markets, efficient 2 ||punishment of wrongdoers, and deterrence of similar conduct by other corporate 3 || officers.”). The indictment filed against Defendants in the criminal case is based on the 4 ||same activities that are the subject of this lawsuit. Both actions vindicate substantially the 5 ||same public interest in maintaining the integrity of public markets and preventing further 6 ||securities fraud. Considering the liberty interests at stake in the criminal case, the Court 7 || finds 1t should take precedence over this civil action for sanctions and monetary penalties. 8 Accordingly, for the reasons stated above, the Court exercises its discretion to stay 9 || this civil proceeding as “the interests of justice seem to require such action.” Keating, 45 10 || F.3d at 324. 11 CONCLUSION 12 Based on the foregoing, the Court GRANTS the Government’s motion to intervene 13 this SEC case and joinder in Danks’ motion to stay proceedings, and GRANTS Danks’ 14 || motion to stay proceedings pending resolution of the related criminal case and. (Doc. Nos. 15 |} 11, 21.) To ensure efficient case management, the Court ORDERS the parties to file a joint 16 || status report, no later than Friday, July 28, 2023, and if necessary, every 60 days thereafter, 17 informing the Court of the status of the criminal case and whether a continued stay should 18 |}remain in effect. 19 IT ISSO ORDERED. 20 || Dated: April 28, 2023 © 21 Hon, Anthony J.Battaglia 22 United States District Judge 23 24 25 26 27 28 D9) ax; 11(22_ATR NER