| SEC Trial Against Paulsen
Yields Liability Verdicts 3 Months Later in
SDNY
By Matthew
Russell Lee, Patreon
BBC
- Guardian
UK - Honduras
- The
Source
SDNY COURTHOUSE,
Oct 23 – On Valentine's Day
weekend in 2015, the
Securities and Exchange
Commission alleges, John A.
Paulsen took part in bribing
Navnoor S. Kang of the New
York State Common Retirement
Fund to steer business to
Paulsen's then-firm Sterne
Agee. The bribe include a
skiing trip to Park City,
Utah.
On July 15, 2020
a bench trial began in the
case, before U.S. District
Court for the Southern
District of New York Judge
Paul G. Gardephe. Inner City
Press is covering it. The
SEC's opening statement quoted
Paulsen's messages to
co-workers about concealing
the trip and which client was
on it.
Judge
Gardephe indicated he would
need more from the parties on
the applicable (scienter)
legal standard the SEC much
meet.
Paulsen's
lawyer painted a different
picture, and before the 45
minute lunch break undertook
two cross-examinations of SEC
witnesses who had filed
declarations as their direct
testimony.
He was also able,
after a time, to have defense
exhibits appear on the screens
before the parties. So it it
goes during the Coronavirus
pandemic.
On Day 3
and last of the trial, Paulsen
was on the stand, his "Wells"
statement being used against
him as impeachment by SEC
lawyer. At that time, Paulsen
threw Ms. Kelley under the
bus. Now he says she didn't
violate law.
SEC lawyer is
getting Paulsen to says "Yes"
again and again to questions
like, "But that was another
lie, correct?"
Apparently
Judge Gardephe agreed. Now
three months later on October
23 Judge Gardephe has ruled,
"While client entertainment
may be a customary part of the
sales process in the financial
service industry, there was
nothing customary about
Kelley’s entertainment of
Kang. Kelley’s entertainment
of Kang was lavish, with more
than $20,000 spent on the Paul
McCartney concert tickets,
related meals and
entertainment, and the Park
City ski trip.... For the
reasons stated above, Paulsen
is found liable for (1) aiding
and abetting Kelley's
violations of งง 17(a)(1) and
17(a)(3) of the Securities Act
(Count One); (2) aiding and
abetting Kelley's violations
of ง 10(b) of the Securities
Exchange Act and Rule 10b-5
(Count Two); (3) aiding and
abetting Kang's violations of
งง 17(a)(1) and 17(a)(3) of
the Securities Act (Count
Three); and (4) aiding and
abetting Kang's violations of
ง 10(b) of the Securities
Exchange Act and Rule 10b-5
(Count Four). The Clerk of
Court is directed to terminate
the motions (Dkt. Nos. 107,
115). By November 9, 2020,
Paulsen will submit a brief
addressing the SEC's arguments
as to an appropriate civil
monetary penalty. SO ORDERED.
(Signed by Judge Paul G.
Gardephe on 10/23/2020)
(jca)."
From the July
closing arguments: Paulsen's
lawyer quotes Kang that
Paulsen is a "bank geek," not
Gordon Gekko.
Paulsen's
defense lawyer's closing is
still going. He says,
Entertaining clients is
standard in this industry. It
doesn't mean these are bribes.
Kang came from the private
sector.
Paulsen's closing
argument: They had been
trading for a year. Mr Walker
approved it. The salesperson
is taking me on the trip. We
can all have questions about
Mr Kang's testimony, given his
history. But his girlfriend,
she said she was surprised to
see Paulsen.
Judge
Gardephe cuts into closing
argument with question: Why
did Paulsen lie to
investigators?
Lawyer: Because
Ms Kelley was worried for
Kang, and Paulsen thought,
What's the big deal? There's
no question that it was wrong.
But he was just trying to help
out Ms Kelley.
Judge Gardephe:
We've been going more than an
hour. How much more do you
have? Lawyer: Just a few
slides. Your Honor knows this
case well.
Now SEC's
closing, emphasizing the the
standard here is preponderance
of the evidence, not beyond a
reasonable doubt. "The
scienter evidence shows he
associated himself with the
wrongdoing."
Judge
Gardephe cuts in with
question: What is necessary?
SEC: Knowledge of deceptive
scheme. Judge Gardephe: It's
enough that he knew Ms Kelley
shouldn't be giving gifts to
Kang? SEC: Kang wanted them to
keep his name off the expense
reports. And Paulsen concealed
Sounds like Judge
Gardephe is *not* going to be
ruling today - SEC is talking
about "post hearing briefing."
So another interim story
later, and yet another when
Judge Gardephe rules
Judge Gardephe
tells parties to propose
briefing schedule, says he'll
prefer it sooner to when he's
heard the evidence. He says, I
have 500 other cases - 600, if
you could the criminal cases.
Inner City Press
will continue to follow this
trial.
The case is
SEC v. Paulsen, 18-cv-6718
(Gardephe)
***
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