big apple transcript of hearing 02 feb 13

7/27/2019 Big Apple Transcript of Hearing 02 Feb 13

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1 UNITED STATES DISTRICT COURTMIDDLE DISTRICT OF FLORIDA

2 ORLANDO DIVISION

3 Docket No. 6:09-CV-1963-ORL-28GJK

4 . . . . . . . . . . . . . . .U.S. SECURITIES AND :

5 EXCHANGE COMMISSION :: Orlando, Florida

6 Plaintiff : February 28, 2013: 9:04 a.m.

7 v. ::

8 BIG APPLE CONSULTING USA., :INC., ET AL. :

9 :Defendants :

10 . . . . . . . . . . . . . . .

11

12 TRANSCRIPT OF EVIDENTIARY HEARINGBEFORE THE HONORABLE JOHN ANTOON, II

13 UNITED STATES DISTRICT JUDGE

14

15 APPEARANCES:

16 For the Plaintiff: Jeffery T. InfeliseDuane K. Thompson

17

18 For the Defendan t: Carl F. Schoeppl

19Pro se: Matthew Maguire

20 Mark C. KaleyKeith Jablon

21

22 Court Reporter: Amie R. First, RPR, CRR330-760-2452

23

24 Proceedings recorded by mechanical stenography.

25 Transcript produced by Computer-Aided Transcription.


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1 P R O C E E D I N G S

2 THE DEPUTY CLERK: This is the case of

3 U.S. Securities and Exchange Commission versus Big Apple

4 Consulting USA, Inc.; MJMM Investments, LLC; Marc Jablon;

5 Matthew Maguire; Mark Kaley; and Keith Jablon. Case Number

6 6:09-CV-1963.

7 Will counsel please state their appearances for

8 the record?

9 MR. INFELISE: Good morning, Your Honor. Jeffery

10 Infelise for the Securities and Exchange Commission.

11 MR. THOMPSON: Good morning, Your Honor. Also for

12 the Securities and Exchange Commission, Duane Thompson.

13 MR. INFELISE: And with us, Your Honor, is Gerardy

14 Carrenard.

15 THE COURT: What's your last name?

16 MS. CARRENARD: Carrenard?

17 THE COURT: Are you an attorney then?

18 MS. CARRENARD: I am not.

19 THE COURT: You're giving them technical

20 assistance? Is that what you're doing?

21 MS. CARRENARD: I will try.

22 THE COURT: Lawyers need a lot of that.

23 MR. SCHOEPPL: May it please the Court? Your

24 Honor, good morning. My name is Carl Schoeppl. I'm here

25 this morning on behalf of Big Apple Consulting USA, Inc.,


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1 MJMM Investments, LLC, and Marc Jablon.

2 And Marc Jablon is seated here to my left.

3 MR. KALEY: Mark Kaley appearing pro se.

4 MR. KEITH JABLON: Keith Jablon appearing pro se.

5 MR. MAGUIRE: Matthew Maguire appearing pro se.

6 THE COURT: Okay. We're going to start with a

7 short opening statement, telling me what you want and why.

8 And then we're going to move into the evidence.

9 We're going to take a very short break this

10 morning, but we're not going to go that long. We're going

11 to go to about 11:30. We'll break for about an hour. And

12 then we'll pick up and go until you're done. I'm trusting

13 that will be before 5:00.

14 Okay? You may proceed.

15 MR. INFELISE: Thank you.

16 MR. SCHOEPPL: Your Honor, if I may, I would just

17 like to invoke the rule of sequestration. If there are any

18 witnesses that are not parties, I would like to ask that

19 the Court invoke the rule. I don't see anybody in the

20 courtroom yet but --

21 THE COURT: The rule of sequestration as it

22 applies to witnesses has been requested. The Court grants

23 the motion and invokes the rule. Counsel understands the

24 rule and will assist the Court in enforcing it. I don't

25 see anybody in the room except the parties and counsel and


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1 staff of counsel.

2 You may proceed, sir.

3 MR. THOMPSON: Thank you, Judge Antoon. And I

4 will try to be brief, keeping my opening remarks to about

5 15 minutes.

6 Especially since this is a bench hearing, I

7 encourage the Court to go ahead and pose any questions that

8 the Court may have along the way.

9 I'd like to begin, Your Honor, with a brief

10 reminder of the violations found in the liability phase of

11 this case. That is, after all, the departure point for

12 today 's consideration of remedies.

13 On January 19, 2012, after a two-week trial, a

14 jury found that all defendants had committed securities

15 fraud in violation of Section 17(a) of the Securities Act.

16 The jury also found that all defendants had aided

17 and abetted James Plant in violating Section 10b of the

18 Exchange Act.

19 Judge, those findings were based on overwhelming

20 evidence that the defendants played a critical role in the

21 dissemination of a fictitious press release claiming that

22 Cyberkey Corporation had a $25 million purchase order from

23 the Department of Homeland Security.

24 For example, the evidence showed that some

25 defendants operated a call room to contact brokers. They


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1 also handled investor relations' calls for Cyberkey. And

2 perhaps most critically, the defendants drafted the press

3 releases in question, claiming the fictitious $25 million

4 purchase order.

5 And, Judge, at the same time defendants were

6 engaged in these activities, they were aggressively selling

7 Cyberkey stock and making money hand over fist in the

8 process.

9 So in addition to violating the antifraud

10 provisions of securities laws, the sales of Cyberkey stock

11 were themselves illegal. They were illegal because the

12 sales were neither registered with the Securities and

13 Exchange Commission nor with any valid exception to

14 registration.

15 Therefore, on August 25 of 2010, the Court granted

16 the Commission's motion for summary judgment on its claims

17 against Big Apple, MJMM, Marc Jablon and Matthew Maguire

18 under Section 5 of the Securities Act.

19 The Court also ruled that Big Apple and MJMM had

20 violated Section 15(a) of the Exchange Act by acting as

21 dealers, unregistered dealers.

22 And then Marc Jablon, Mark Kaley and Matthew

23 Maguire had aided and abetted those violations by acting

24 with at least severe recklessness.

25 Through these blatant violations, Judge, Big Apple


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1 and MJMM cleared millions of dollars by selling millions of

2 shares of unregistered stock of Cyberkey.

3 That brings us to the subject of today's hearing

4 remedies. The Commission will be asking the Court to

5 fashion four types of remedies.

6 The first remedy that we seek is disgorgement of

7 ill-gotten gains, plus prejudgment interest.

8 For Big Apple and MJMM, the evidence at the

9 liability phase of this case, we submit, established that

10 those entities had cleared approximately $5.4 million by

11 selling Cyberkey stock.

12 Now, we expect the defendants to dispute that

13 figure in all sorts of creative ways, but we also expect

14 that none of those justifications will bear scrutiny.

15 Likewise, it would be no defense for Big Apple and

16 MJMM to argue in this proceeding that they can't satisfy

17 such a disgorgement order.

18 Your Honor, that's a collections issue. Whether

19 or not a defendant claims that it's in dire financial

20 circumstances, that's simply not a defense due to a

21 disgorgement order.

22 But, Judge, at the same time, the Court should not

23 blind itself to Marc Jablon's efforts to take money out of

24 Big Apple and MJMM.

25 The Commission will ask that the Court hold Marc


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1 Jablon jointly and severally liable for disgorging

2 Big Apple and MJMM's ill-gotten gains. And the evidence

3 upon which that will be based, Your Honor, will show that

4 Marc Jablon dominated those entities.

5 And after the Commission filed this action in

6 2009, he proceeded to dissipate the corporation's assets,

7 paying himself large dividends and salary, even as the

8 corporate entities were reporting losses.

9 The evidence will also show, Judge, that

10 Mr. Jablon, Mr. Marc Jablon, cannot account, cannot

11 credibly account for what happened to the millions of

12 dollars that Big Apple and MJMM made selling Cyberkey

13 stock.

14 Now, as to the other individual defendants,

15 Mark Kaley, Matthew Maguire and Keith Jablon, our position

16 on disgorgement will be informed by the depositions that

17 were taken in the remedies phase of this case, as well as

18 whatever evidence they care to present at this hearing. So

19 we'll say more about that in our post-hearing submission,

20 Judge.

21 The next remedy that the Court should fashion is

22 injunctive relief. And this applies to all defendants. We

23 submit that injunctive relief is clearly warranted in view

24 of the egregiousness of the violations, and the substantial

25 danger of additional violations in the future.


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1 Now, I should note that that Commission will not

2 be seeking generic obey-the-law injunctions but will

3 instead be seeking specific conduct-based injunctions.

4 An obey-the-law injunction, as I'm sure Your Honor

5 knows, simply says that the defendant shall commit no

6 further violations of the securities laws.

7 But in the case of SEC against Goble, Eleventh

8 Circuit questioned the enforceability of such injunctions

9 under Rule 65. So in light of Goble, we will be asking the

10 Court to enter injunctions that are more specifically

11 tailored to the type of conduct that defendants engaged and

12 as to which violations were found.

13 The third type of remedy that we'll be seeking is

14 a penny stock bar. And this applies to defendants

15 Big Apple, MJMM, Marc Jablon and Matthew Maguire.

16 Judge, penny stock bars will prevent these

17 defendants from participating in any offering of penny

18 stock in the future. And that would include a ban on

19 defendants acting as dealers or inducing a purchase or sale

20 of a penny stock.

21 I do emphasize that the Commission considers this

22 relief critical. And if there's any doubt about that, I

23 submit that the evidence the Court will hear about

24 Marc Jablon's continued involvement with penny stocks will

25 erase that doubt.


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1 We will show, Your Honor, that Mr. Jablon is

2 essentially continuing his business under the guise of

3 another company and using the same business model that led

4 to the violations already found.

5 Finally, we come to the question of money

6 penalties. The Commission will seek the maximum penalties

7 allowed by the law for each violation. So that would be a

8 third-tier penalty for each violation found.

9 The Securities Act and the Exchange Act provide

10 that third-tier penalties may be imposed when the violation

11 involved fraud or deceit and resulted in substantial loss

12 to others or created a significant risk of substantial loss

13 to others.

14 Now, third-tier penalty may not exceed the greater

15 of $120,000 for each violation by a natural person and

16 $600,000 for a corporation or the gross amount of

17 defendants' pecuniary gain.

18 The amount of penalty is within the sound

19 discretion of the Court. And the courts have considered

20 various factors.

21 I will note that some courts have considered

22 defendant's financial circumstances. And in discovery of

23 the remedies phase, Judge Antoon, all of the individual

24 defendants, in particular Mr. Keith Jablon, Mr. Matthew

25 Maguire and Mr. Mark Kaley, suggested that they have become


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1 impecunious.

2 And as to those particular defendants, the

3 Commission will defer taking a position on the appropriate

4 money penalties, if any, until after all of the evidence is

5 in.

6 But I can say right now the Commission does intend

7 to seek penalties as to Mr. Marc Jablon. Indeed, the

8 Commission intends to present evidence that Mr. Jablon is

9 currently receiving substantial income from work for penny

10 stock companies.

11 Let me now provide a brief introduction to the

12 Commission's planned evidentiary exposition here today.

13 The focus of the Commission's case will be evidence showing

14 that for the corporate defendants, and especially for Marc

15 Jablon, the Cyberkey saga is not aberrational but instead

16 reflects a mindset, a way of life, a business model, that

17 they fully exploited and that Mr. Marc Jablon continues to

18 exploit to this day.

19 In essence, Your Honor, we intend to show that

20 Mr. Jablon will not stop unless he is stopped.

21 We will show that Mr. Marc Jablon's companies have

22 received hundreds of millions of unregistered shares, not

23 just in Cyberkey Corporation, but in a number of other

24 penny stock companies as well. We will show that

25 Mr. Jablon's companies quickly sold those shares into the


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1 market without registration.

2 We will show that Mr. Marc Jablon continues to be

3 involved in public relations activities and investor

4 relations activities for penny stock companies.

5 And we will also show that Mr. Jablon essentially

6 transferred his business and his business model to another

7 company that he created. And that company is called Boost

8 Marketing.

9 The evidence will show that Boost Marketing

10 essentially continued the business that Big Apple and its

11 MSI, Management Solutions International, business had

12 formerly conducted.

13 The only difference is that Mr. Jablon is now

14 calling himself a consultant to that business.

15 Let me review the evidentiary sources and witness

16 lineup that we intend to present this morning and this

17 afternoon.

18 Our first witness will be Mr. Stephen Glascoe.

19 And he's offered as a summary witness pursuant to

20 Rule 1006, Your Honor.

21 Mr. Glascoe is a senior market surveillance

22 specialist in the SEC's division of enforcement. And he

23 will summarize the trading activity in one of the brokerage

24 accounts that Big Apple used to trade unregistered shares

25 of various clients, not just Cyberkey, in the period


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1 June 2009 to July 2010.

2 Those records show, Your Honor, that in just that

3 one period and for just that one brokerage account,

4 Big Apple Consulting sold over 500 million shares of

5 unregistered penny stock and had over $2.3 million in

6 revenue from those sales.

7 Its affiliate, Big Apple Equities, in the same

8 period sold over 1.2 billion shares of unregistered penny

9 stock and received over $2.2 million in revenue on those

10 sales.

11 Now, Your Honor, we know from the liability phase

12 that Big Apple and MJMM had many brokerage accounts. And

13 this is just one of them.

14 And we submit that the trading activity in that

15 one brokerage account lending to various stock companies in

16 that one period shows the extent of defendants' --

17 particularly the corporate defendants and Marc Jablon --

18 activities and that this was, indeed, a business model for

19 them.

20 If I can digress from the witness lineup,

21 Your Honor, in addition to live witnesses, the Commission

22 does rely on deposition designations taken during the

23 remedies phase of this case.

24 We do not propose to put anybody in the witness

25 box and read those into the record. Instead, we would ask


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1 that Your Honor take those under submission.

2 The one exception will be it may be necessary as a

3 predicate for Mr. Glascoe's testimony, which will be

4 presented by Mr. Infelise, to read some of the designations

5 from Marc Jablon 's testimony.

6 And that's because there's a hearsay objection to

7 the brokerage records that Mr. Glascoe will be summarizing.

8 And unless an objection can be resolved, it may be

9 necessary to present some deposition designations.

10 And there's also a certification from the entity

11 that produced the records that can be presented, Your

12 Honor.

13 But in addition to deposition designations, we

14 also rely on testimony from the liability phase. In

15 particular, the Court may remember that the Commission

16 presented Mr. Robert Lowry as both an expert and a summary

17 witness and in our post-hearing submissions will be relying

18 on Mr. Lowry's testimony which summarized the trading

19 records that showed the amounts that Big Apple and MJMM

20 cleared through their sales of Cyberkey stock. And, again,

21 we believe that amount is $5.4 million.

22 Our next witness, live witness, will be

23 Mr. Marc Jablon himself. The focus of that examination

24 will be Mr. Jablon's continued involvement with penny stock

25 companies and his income from such activities as well as


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1 his domination of both Big Apple and MJMM and what happened

2 to all of the money that they took in.

3 Now, parenthetically I note that the Commission

4 and Mr. Schoeppl have agreed that in cross-examining

5 Mr. Jablon, Mr. Schoeppl may go beyond the scope of the

6 Commission's direct examination. And hopefully that will

7 result in time savings.

8 The live examination of Mr. Jablon will endeavor

9 not to repeat testimony gone into in the designations

10 except to the extent necessary for impeachment, or as

11 already mentioned, to establish foundation for

12 Mr. Glascoe's testimony.

13 Our next witness will be Mr. Michael Gibilisco.

14 And this will be brief testimony. Mr. Gibilisco is the

15 founder of the penny stock company named 3D Eye Solutions.

16 And he will testify as to Mr. Marc Jablon's involvement

17 with that company.

18 Next in the lineup, Your Honor, is Miss Brenda

19 Hamilton. Now, Miss Hamilton is a securities lawyer in

20 Boca Raton.

21 And the evidence will show that in 2010, Marc

22 Jablon approached her to provide an opinion letter to

23 OTC Markets on behalf of Big Apple's clients.

24 OTC Markets runs a quotation platform for microcap

25 and penny stock companies, and it has various levels of


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1 quotations. It has Grey Market quotations which involve

2 companies that don't provide any type of disclosures. And

3 then Pink Sheets is for companies that do provide some

4 disclosures.

5 Penny stock companies typically aren't SEC

6 reporting, but OTC Markets or Pink Sheet companies does

7 require that they provide certain disclosures that

8 basically track what they would provide to the SEC.

9 So the evidence will show that in May of 2010,

10 Marc Jablon approached Miss Hamilton after Pink Sheets had

11 refused to take opinions regarding disclosures made by

12 Big Apple's clients. They refused to take the opinions

13 from two other lawyers that Big Apple had referred to those

14 clients.

15 The evidence will show that those two attorneys

16 were part of a string of attorneys that Big Apple had

17 referred to its clients to provide these opinions so that

18 the company stock could be quoted on Pink Sheets and that

19 that string of attorneys is all under some type of cloud.

20 They've all either been barred by Pink Sheets

21 itself, banned from practicing before the SEC, or facing

22 some type of bar disciplinary proceeding.

23 But Brenda Hamilton was different. The evidence

24 will show that Miss Hamilton would not bless disclosures

25 that Big Apple had prepared for its client, and the


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1 particular client we'll be focusing on is a company called

2 Cloud Centric.

3 But Miss Hamilton wouldn't bless disclosures that

4 Big Apple had prepared. She also noted red flags. Those

5 red flags were the absence of any disclosure in the

6 disclosures that Big Apple had prepared concerning

7 Big Apple's receipt of so much Cyberkey stock and its sales

8 of that stock into the market without registration pursuant

9 to the same purported exemption that this Court in the

10 liability phase found did not apply, did not justify

11 Big Apple sales of unregistered Cyberkey stock.

12 The evidence will also show that Big Apple and

13 Marc Jablon first tried to silence Miss Hamilton and then

14 tried to punish her after she wouldn't go along with the

15 program.

16 This evidence, we submit, will make crystal clear

17 the need for strong injunctive relief and penny stock bars

18 against Mr. Jablon and his companies.

19 Our final witness, Your Honor, will be Mr. Jason

20 Takacs. Mr. Takacs is a person who Marc Jablon installed

21 as a nominal owner and head of Boost Marketing.

22 The evidence will show that Mr. Jablon is using

23 Boost Marketing to continue the same business and the same

24 business model he had with Big Apple. Indeed, Big Apple

25 simply assigned its consulting contracts to Boost


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1 Marketing.

2 The evidence will show that Mr. Jablon is

3 receiving approximately $300,000 a year in compensation as

4 a purported consultant to Boost Marketing. And, tellingly,

5 the evidence will show that Mr. Jablon describes himself as

6 the founder of Boost Marketing.

7 All this evidence, Your Honor, we believe, is

8 relevant to the need for injunctive relief. Penny stock

9 bars tend to show that Mr. Jablon has substantial income,

10 even leaving aside the question of what happened to all of

11 the money that Big Apple and MJMM made selling Cyberkey

12 stock.

13 Your Honor, we anticipate that the evidence should

14 finish up by late afternoon, depending on the need to

15 impeach witnesses and how much time gets spent arguing on

16 objections.

17 And we are assuming, given that there will be

18 post-hearing submissions, that the Court does not want

19 closing argument.

20 THE COURT: Well, I'm under the gun on time

21 standards. I need to get this case concluded by the end of

22 next month. So whatever I ask you to do, if anything, will

23 be quickly.

24 MR. THOMPSON: We understand, Your Honor.

25 Thank you, Your Honor.


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1 MR. SCHOEPPL: Your Honor, may I approach?

2 May it please the Court? Your Honor, this is the

3 remedies phase of the case. And I just want to correct one

4 thing that was mentioned about the liability phase.

5 There was a reference that my clients drafted the

6 press releases. That's not accurate. There was a

7 stipulation entered between the parties that the press

8 releases were based on content that was provided by

9 Cyberkey and James Plant.

10 That's part of the evidence, the trial record. So

11 that is not correct. My clients relied upon --

12 THE COURT: Are those two things inconsistent?

13 MR. SCHOEPPL: Absolutely, Your Honor.

14 There's a U.S. Supreme Court case that came out

15 that we cited in our moving papers and the various Rule 50

16 motions and other motions that dealt with that issue.

17 And basically that case stood for the proposition

18 that if these parties were not the actual drafters of the

19 information, they weren't holding themselves out as being

20 the persons that were actually making the statements, they

21 could not be liable under 10b.

22 And in this case, that's a critical fact, because

23 every one of the press releases that the SEC has alleged in

24 the underlying liability phase of the case were actually

25 published and printed by Cyberkey itself.


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1 And that's a critical fact. And we think that

2 that's important because it does bear on the issues

3 regarding the penalties, as an example, in the remedies

4 phase of the case, which I'm actually going to talk about

5 that first.

6 The penalty phase of the case is one of the

7 remedies the SEC is seeking. There are actually three

8 different tiers for civil money penalty under the

9 Securities Act and also under the Exchange Act.

10 Now, the SEC has indicated that it's going to seek

11 the maximum third-tier penalty against my clients in this

12 case.

13 Now, in my view, I don't believe it is appropriate

14 for them to do that for any of the violations, but

15 particularly for the violations that do not involve fraud,

16 deceit, or misrepresentations.

17 In this case, the Court entered a summary judgment

18 order regarding a Section 5 violation and a Section 15

19 violation. Those two violations are separate statutory

20 provisions. The first is a registration provision of the

21 securities, and the other is a registration provision

22 regarding a broker-dealer.

23 Neither one of those provisions involved fraud,

24 deceit, misrepresentations. And under the civil monetary

25 provisions, you need to have those -- that nexus in order


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1 to impose a third tier, or even a second tier, civil money

2 penalty.

3 So it's our position that the violations for

4 Section 5 and for Section 15 cannot result in a third-tier

5 or second-tier civil money penalty; that at best, it could

6 result in a first-tier civil money penalty.

7 So we believe that that's something that the Court

8 is going to have to align when presented with the remedies

9 papers after this hearing today.

10 Furthermore, on that issue, with respect to the

11 penalty, the ability to pay of a party is a consideration

12 that the Court may take into consideration when assessing

13 the amount of the penalty.

14 And I agree with the plaintiff that for purposes

15 of disgorgement, at this time, that's not an appropriate

16 factor for the Court to consider in assessing the amount of

17 disgorgement, but it is a factor that is appropriate for

18 the Court to consider in assessing the penalty amount.

19 So let me turn to the disgorgement issue. In this

20 case, Your Honor, the disgorgement issue is really one that

21 the SEC has the burden to carry here.

22 It has to prove that the reasonable approximation

23 of the ill-gotten gain, the disgorgement, is based on a

24 theory of unjust enrichment. And the SEC has to tether the

25 proof at the remedies phase to an actual violation in the


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1 underlying liability part of the case.

2 It can't just get a blunderbuss: Here's a tax

3 return for $20 million, and they are liable to pay

4 $20 million. They have to show a nexus between the

5 Cyberkey transactions, the violation, and then an

6 ill-gotten gain that is derived from that violation.

7 And it's our position -- until today in opening

8 statement, we did not know what they were seeking in terms

9 of the amount of disgorgement against Big Apple, MJMM, and

10 Mr. Marc Jablon. Now, today, they are saying they want

11 $5.4 million.

12 The evidence in this case, they are going to have

13 to adduce it to demonstrate what the basis is for that

14 particular number.

15 Now, each of the parties in the case, the two

16 entity defendants in the case, MJMM and Big Apple, do not

17 stand in the same position as it relates to disgorgement.

18 It's our position that MJMM was the contracting

19 party directly with Cyberkey. They received the lion's

20 share of the money directly from Cyberkey, and Big Apple

21 did not.

22 So we expect that the evidence is going to show

23 that there's going to be a dichotomy between the

24 approximation of disgorgement that is attributable to

25 Big Apple and as it relates to MJMM.


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1 We don't know what it is yet until we see their

2 proof that they put in. But that's something that I want

3 to alert the Court to, that they have to tie it to each one

4 of the defendants.

5 And in the case of Mr. Marc Jablon, we don't

6 believe it is necessary for the Court to hear evidence

7 regarding what the SEC is claiming, domination and control.

8 We've never disputed the fact that Mr. Marc

9 Jablon, you know, was a shareholder, an officer, of the two

10 corporate entities that are defendants in this case. So we

11 really don't think that's an issue that really warrants

12 dispute on our end.

13 And we understand principles of joint and several

14 liability with that as well for Mr. Marc Jablon.

15 So I don't think that's something that we really

16 want to waste the Court's time on. So I want to alert that

17 that's not something that we're contending is an issue.

18 But on the disgorgement issue, one of the things

19 that we are unaware of until we see the evidence, we could

20 have evidence of potential setoffs in the case.

21 There's certain expenses that legal precedent in

22 the Eleventh Circuit and other districts within the

23 Eleventh Circuit have recognized for proper setoffs against

24 the amount of disgorgement that the SEC is seeking; that

25 they are not entitled to a gross number.


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1 There has to be some proof that the SEC puts on

2 that shows that this is the actual amount of the gain that

3 was received. Because the idea of disgorgement is to

4 deprive the alleged violator of whatever the unjust

5 enrichment was.

6 And we believe that there are some setoffs that

7 should be applied. There are exhibits that their own

8 expert has prepared, which I believe almost all of them

9 have already been stipulated as to their admission

10 regarding that.

11 And I haven't looked at the numbers to compare

12 them with what those numbers are to see -- the SEC may

13 already be conceding that. And if they are, we're not

14 going to have a lot to deal with on the setoff issue other

15 than the fact that I'm alerting the Court that that's a

16 factor.

17 Now, along with that issue on disgorgement, the

18 SEC seems to be mixing apples and oranges regarding what it

19 needs to prove in the remedies phase versus what it has to

20 prove in the collection phase.

21 It is our position that evidence regarding the

22 ability to pay disgorgement is only relevant to the Court

23 at the time of collection. It's not relevant today at the

24 remedies phase.

25 THE COURT: I think that's what Mr. Thompson said.


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1 MR. SCHOEPPL: Yeah. And so we believe that, you

2 know, evidence regarding income that Mr. Jablon is earning

3 today, that's really not appropriate for the Court's

4 consideration on disgorgement.

5 And in any event, what we intend to do on behalf

6 of Mr. Jablon, there's a federal wage garnishment exception

7 for income. The federal statute provides that only

8 25 percent of after-tax income can be subject to a court

9 order.

10 And what we intend to do is enter an income

11 deduction order for 25 percent of his after-tax income that

12 would be applied to whatever judgment the Court ultimately

13 enters in this case.

14 At this time, the parties, my clients, do intend

15 to file a notice of appeal, but we expect there will be a

16 judgment. He intends to fully comply to the extent of his

17 ability.

18 We believe that evidence regarding dissipation or

19 alleged transfers of assets to reduce the assets of

20 Big Apple and MJMM during the time period between 2009 and,

21 I believe, 2012, I don't think it's relevant for the Court

22 for today. That's a collection issue.

23 And if the SEC is going to take the position that

24 there's been a dissipation of assets or a diminution of the

25 ability to pay, that's something that the Court doesn't


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1 need to consider today.

2 And we believe that that should not be permitted,

3 that type of testimony or evidence today. That should

4 happen after, in the collection phase of the case.

5 Now, another area that has caused us some concern

6 regarding the remedies phase is that the SEC appears to

7 seek to offer evidence regarding Cloud Centric and other

8 securit ies, other than Cyberkey.

9 Cyberkey, as the Court will remember, was only a

10 client during the time period between 2005 and 2007 for Big

11 Apple and MJMM. It's over five years ago.

12 And what the SEC is seeking to do is basically try

13 another case today to establish alleged violations that my

14 clients haven't even been charged with. We think it's a

15 denial of procedural due process for them to do that.

16 They haven't provided us with a charging

17 instrument charging my clients with any alleged violations

18 regarding Cloud Centric, Artfest, or any of the other

19 securities that they attempted to elicit testimony and

20 documentary evidence during the remedies phase.

21 And we think it's improper for them to adduce

22 evidence today before this Court on that issue.

23 THE COURT: How would that work, though, if just,

24 for example, there is conduct that would be uncharged,

25 untried, but may be relevant with regard to injunctive


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1 relief?

2 MR. SCHOEPPL: Well, on the injunctive relief

3 issue, Your Honor, I think the SEC versus Goble case is the

4 leading case out of the Eleventh Circuit that came out in

5 2012. There's six factors that the Court has to consider.

6 Almost every one of those factors relate to the underlying

7 violations.

8 For example, the first factor is the egregiousness

9 of the defendants' actions. That's the actions in the

10 underlying liability phase of the case, the Cyberkey

11 transactions.

12 The second issue, which is the issue that, I

13 think, the plaintiff is training on, is the isolated or

14 recurrent nature of the infraction.

15 I think that's the -- what they are trying to

16 tether the ball to today, with that. But we don't think

17 that's appropriate. And this is why.

18 Big Apple, MJMM, and Mr. Marc Jablon have never

19 been found to have violated the federal securities laws

20 before or after this case. And if the SEC is going to try

21 to adduce evidence of an actual violation, they need to

22 charge them, if that's really what they want to do, in my

23 view; and that's not what they've done.

24 And what they are trying to do, they are trying to

25 get an adjudication today based on facts that we don't have


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1 charges; we don't have an opportunity to take discovery on;

2 and we think it's a denial of due process. We just don't

3 think it's appropriate.

4 On the injunction phase, the issue really -- and,

5 by the way, I mean, for purposes of the evidence with

6 respect to this point, obviously we intend to appeal the

7 underlying liability determination.

8 But if it helps deal with this, we have no problem

9 stipulating to the entry of an injunction, Your Honor, and

10 the penny stock bar as to my clients without prejudice to

11 our right to appeal the underlying liability determination.

12 Because we don't believe any of that stuff is

13 relevant to it. We don't want to waste the Court's time in

14 going through this evidence. Because this will create

15 another appellate issue for us. We believe it is not

16 appropriate for the SEC to basically sandbag us.

17 THE COURT: Have you guys talked before you came

18 in here?

19 MR. SCHOEPPL: Yes. We've talked about giving us

20 notice and why they're doing this.

21 THE COURT: No, about the stipulating. If you're

22 stipulating to the penny stock bar, then that would remove

23 an issue from --

24 MR. SCHOEPPL: Yeah. As far as we're concerned,

25 as it relates to Marc Jablon, Big Apple Consulting, and


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1 MJMM, we're prepared to do that. And I think that really

2 narrows the issues down for the Court. Obviously there are

3 other parties in the case besides my clients.

4 But until I heard their opening statement, I

5 really didn't know what they intended to do with this

6 evidence. It was just a hodgepodge of stuff. I was

7 speculating as to what they might do with it. Now I see

8 what they are trying to do.

9 THE COURT: Mr. Maguire, would you be willing to

10 enter into such a stipulation as well?

11 MR. MAGUIRE: Penny stock bar, yes.

12 THE COURT: Mr. Jablon? Back row.

13 MR. INFELISE: Mr. Kaley.

14 THE COURT: I'm sorry. No. Mr. Kaley is over

15 here.

16 MR. KEITH JABLON: Your Honor, I don't think

17 there's a penny stock --

18 MR. THOMPSON: Your Honor, if I may, the

19 Commission did not seek a penny stock bar for Mr. Keith

20 Jablon.

21 THE COURT: Okay. Mr. Kaley?

22 MR. KALEY: I don't believe there was a penny

23 stock bar sought against me either.

24 MR. THOMPSON: That's correct, Your Honor.

25 THE COURT: Well, that makes the day a little


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1 easier, I think.

2 MR. SCHOEPPL: Yes.

3 And, Your Honor, I think that that will then --

4 all of the objections that I made to the exhibits and to

5 the testimony of certain of the witnesses, including

6 Miss Hamilton, would be now obviously ripe and appropriate.

7 And we think then the only issue that really

8 should be offered today would be disgorgement, prejudgment

9 interest, and civil penalties. I think those are the only

10 things that would be appropriate for the Court to consider.

11 The issue with respect to the penalty is directly

12 related to the disgorgement number. The way that the tiers

13 work under the three tiers, it has the greater of a certain

14 dollar amount or the gross pecuniary amount of the gain

15 that the defendant entered into .

16 If, for example, the number is $5.4 million, I

17 anticipate that the SEC is going to seek the $5.4 million

18 for the penalty.

19 Is that a fair deducement, or you don't know?

20 MR. THOMPSON: The penalty would be based on the

21 language of the Securities Act and the Securities Exchange

22 Act, Your Honor, which, as I indicated, sets forth, I

23 believe, on a per-violation basis, $120,000 for an

24 individual and up to $600,000 for the corporate entity.

25 So that would be the basis of the Commission


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1 seeking penalties. So for the number of violations found,

2 for example, we would multiply that by the statutory

3 amounts.

4 THE COURT: Mr. Thompson, you accept the

5 stipulation with regard to the penny stock bar, right?

6 MR. THOMPSON: We would need to know, Your Honor

7 -- we are seeking a permanent bar. Because we do believe

8 conduct was egregious, and there's a danger of further

9 conduct in the future. So if they are stipulating to the

10 permanent stock bar, penny stock bar, we certainly accept

11 that.

12 THE COURT: Is that included in your stipulation?


14 MR. THOMPSON: And as to the injunction,

15 Your Honor, if I may, as I indicated, we're not just

16 seeking a generic obey-the-law injunction, but we're

17 seeking a specific conduct-based injunction.

18 So the language of that would need to be worked

19 out. But in concept, we'd certainly welcome a stipulation

20 to injunctive relief.

21 THE COURT: I understood the offer to stipulate to

22 be that the defendants against whom the bar was being

23 sought would not engage in that trade, right?

24 MR. SCHOEPPL: Yeah.

25 Your Honor, if I can help, the penny stock bar


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1 language, I think that's not subject to the SEC versus

2 Goble case.

3 MR. THOMPSON: That's correct.

4 MR. SCHOEPPL: The language, as I understand it,

5 there's standard language that's used in a penny stock bar.

6 I'm familiar with that language, and I know that my client

7 is familiar with that language as well.

8 That language is not part of the Rule 65 issue. I

9 don't think there's going to be an issue with that. That's

10 standard boilerplate language that the SEC requires in

11 every penny stock bar.

12 The issue is not the same with the injunction, but

13 I can speak to that separately.

14 MR. THOMPSON: I don't know that I would call it

15 boilerplate language, Your Honor, but there is standard

16 language. I'm sure Mr. Schoeppl is familiar with it. I

17 can pull it up, and we can look at it and maybe agree to it

18 during a recess.

19 But I think the larger issue is the language of

20 the injunction. And we would need to tailor that language

21 to the violations found in order to prevent future

22 violations.

23 But, again, in concept, we certainly welcome such

24 a stipulation.

25 MR. SCHOEPPL: And, Your Honor, if I can just


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1 address the injunction issue now, in terms of the

2 fashioning of the actual language in the injunction order

3 is not something -- I don't believe it would have been done

4 today.

5 I think the evidence today would have been to put

6 on a basis to impose injunctive relief, I believe, is what

7 the purpose of today's hearing would be.

8 But the Goble case did address certain language

9 that would be found like in a Section 5 violation or a

10 15 violation, I believe, in the Goble case.

11 It found that the language under the securities,

12 under the registration provisions, was clear to prohibit

13 the type of conduct so that a defendant would know how to

14 comply with that to avoid a contempt.

15 The issue is on the fraud part and how to draft

16 that language. I think that would have to be tailored to

17 the specific conduct in the underlying case regarding

18 Cyberkey.

19 And the SEC staff would have to submit a proposed

20 injunction order to me, and we would look at that. And

21 obviously we would endeavor to deal with that in good faith

22 and address it.

23 That's not something that would happen today, but

24 we certainly would do that, Your Honor, in this case.

25 THE COURT: When would that happen?


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1 MR. SCHOEPPL: As soon as the SEC wants to provide

2 it to me, we can turn that around quickly, Your Honor. We

3 know the Court wants to dispose of this case. We're happy

4 to do that as soon as possible.

5 MR. THOMPSON: Your Honor, first of all, I believe

6 it is the Goble case, not Global.

7 MR. SCHOEPPL: Goble, G-O-B-L-E. He used to be my

8 former client. I know who he i s.

9 MR. THOMPSON: Mr. Schoeppl is correct. We have

10 not had specific language here to present at the hearing

11 today. Perhaps during a break -- the Court has indicated

12 that we're going to need to take a break at 11:30. We may

13 be able to have some discussion then and maybe work

14 something out.

15 THE COURT: Okay.

16 MR. SCHOEPPL: And then, if I can turn to the

17 issue of the penalty, because I believe that the penalty,

18 if I heard Mr. Thompson correctly, he was talking about the

19 per violation assessments that are in the statute.

20 Well, the per violation, I don't know how they --

21 they haven't offered evidence as to how many different

22 violations they claim existed. I don't know how they are

23 quantifying that.

24 But under the third tier, it is $100,000 for a

25 natural person or $500,000 for any other person; but it's


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1 the greater of those amounts against the gross amount of

2 the pecuniary gain as a result of the violation. So they

3 can't get more than that number. And I haven't seen a

4 quantification of that.

5 But I think that for purposes of the hearing

6 today, my understanding of a remedies hearing on the

7 penalties phase is for the Court to determine the propriety

8 of entering a penalty assessment, that that's the purpose

9 of it.

10 Now, as a matter of law, I believe that if there

11 are findings of fact in the underlying case on liability

12 that triggers a fraud or deliberate disregard or reckless

13 disregard of a regulatory requirement, that's going to

14 trigger the application of either a second- or third-tier

15 penalty.

16 The amount of that penalty is obviously based on

17 the number of violations or the gross amount of the

18 pecuniary gain.

19 I believe that that can all be argued on the

20 papers. I don't know what it is yet. As to what it is, I

21 think that the moment that there is a violation, that this

22 triggers the application of a potential penalty under the

23 penalty provisions of the statute.

24 So I don't believe additional evidence is needed

25 to determine that issue, that whether a penalty is


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1 appropriate or not.

2 I think the issue for the Court is, when it looks

3 at Section 5 and 15 violations, I don't believe the second-

4 and third-tier penalties are appropriate. I think only a

5 first tier is appropriate for that. That's a legal

6 question, not a factual question.

7 And then I believe whether the second-tier or

8 third-tier penalty, the biggest difference between those,

9 Your Honor, is under the second tier, it has to involve

10 fraud, deceit, manipulation, et cetera.

11 Under a third, it has to involve fraud, deceit,

12 manipulation; and then it has to then -- it has to then

13 result in substantial losses or create a significant risk

14 of substantial losses to other persons.

15 And that, again, is the underlying violation.

16 It's not what happens after the 2007.

17 And so I think that's something that -- you know,

18 I haven't seen the SEC's position on it. We didn't know

19 they were seeking a third-tier civil penalty on everything

20 until today in their opening statement.

21 But I believe that that's something that can be

22 briefed before the Court. I don't believe any new evidence

23 needs to be presented to the Court today on that issue.

24 I think that you have to use the underlying

25 liability, what happened with those violations, whether


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1 those violations exposed persons to substantial risk of

2 loss or losses. I think that's what it comes down to.

3 So I don't believe any evidence on the penalty

4 issue is appropriate today. And that's another reason why

5 I've objected to many of the witnesses that the SEC has

6 attempted to call and many of the exhibits that they have

7 put on their exhibit list for today.

8 So that's that issue.

9 THE COURT: Well, I wish I would have had these

10 issues ahead of time. I could have probably saved you all

11 some time.

12 I'm going to save myself some time right now, at

13 least with regard to the injunctive questions. You're

14 going to have the conference now to see if you can give me

15 a stipulation so we can get -- if possible, I can get that

16 off the table.

17 And we'll proceed from there.

18 MR. SCHOEPPL: Yes, sir.

19 Thank you. How much time would you like us to

20 do -- check back with you in an hour, a half an hour? What

21 would you like us to do?

22 THE COURT: I would like you to do it in about

23 15 minutes.

24 MR. SCHOEPPL: Fifteen minutes. Got it. Thank

25 you.


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1 MR. THOMPSON: Your Honor, if I may very briefly,

2 Mr. Infelise informed me that I did misspeak during the

3 opening statement.

4 I believe I indicated that Miss Hamilton was

5 proposed to testify concerning Big Apple's dealings with

6 Cyberkey. And if I said that, I meant Cloud Centric.

7 THE COURT: Okay.

8 MR. INFELISE: Your Honor, one thing. Based on

9 the stipulations which Mr. Schoeppl has offered, I think

10 that we probably are in a position where we can streamline

11 our case substantially.

12 THE COURT: Okay. That's great.

13 MR. INFELISE: So I would ask for an additional

14 15 minutes so we can reorganize and see what we have to put

15 on.

16 THE COURT: You guys are experts in this field,

17 and you know much more about the intricacies of it probably

18 than the rest of us in the room do. And you understand the

19 appellate issues better probably.

20 It may be -- and I'm speaking -- I'm not assuming

21 this to be true, but to the extent that Mr. Schoeppl made

22 a -- the major issue in our pretrial proceedings, the

23 question that he asked for rehearing on in summary

24 judgment, that's the big -- that's his big issue. And it's

25 a question of law. And it's a good question. It is.


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1 And if all we're doing here or if substantially

2 all we're doing here is setting that up, then maybe there's

3 room for appeal. Maybe there's room for you all to resolve

4 some of these issues even beyond the injunction. And

5 that's great if you can do it.

6 I've recognized that as being the defendants'

7 position and understood all along that that's going to be

8 something that the Eleventh Circuit is going to have to

9 rule on.

10 So maybe that's the -- if you look at it from that

11 perspective, maybe there's more you can agree to.

12 MR. SCHOEPPL: I appreciate that, Your Honor.

13 We'll certainly endeavor to do that. Thank you.

14 (Recess at 9:54 a.m.)

15 THE COURT: Blessed are the stipulators.

16 MR. SCHOEPPL: Your Honor, we've reached a

17 stipulation on all matters to dispense with the necessity

18 of the hearing today.

19 Would you like me to read the stipulation, or

20 would you like to do it?

21 MR. INFELISE: Why don't I go through it?

22 My understanding -- Mr. Schoeppl will correct me

23 if I'm wrong -- is with respect to the defendants, Marc

24 Jablon, Big Apple Consulting, and MJMM, the parties have

25 stipulated that there will be a permanent penny stock bar.


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1 There will be a permanent injunction in language. We have

2 a draft that we intend to finalize that the defendants have

3 looked at and agreed to.

4 There will be $5.4 million in disgorgement. And

5 prejudgment interest will be jointly and severally liable

6 against Mr. Jablon, Big Apple Consulting, and MJMM. And

7 then a penalty, the amount to be determined after briefing

8 by the parties.

9 With respect to the defendants Mark Kaley and

10 Keith Jablon, they've stipulated to a permanent injunction

11 and a penalty in an amount to be determined by the Court

12 after briefing.

13 With respect to the defendant Matt Maguire, a

14 permanent penny stock bar, a permanent injunction, and a

15 penalty, again, to be determined by the Court after

16 briefing.

17 So with that, Your Honor, the SEC has no need to

18 put any evidence on today.

19 MR. SCHOEPPL: And the only thing I would add just

20 for the record is that our stipulation is being entered

21 into without waiving our right to appeal the underlying

22 merits of the case.

23 THE COURT: Right. That's understood. And you

24 represent corporate entit ies.

25 MR. SCHOEPPL: The two entities and Mr. Jablon,


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1 that is correct.

2 THE COURT: Marc Jablon?


4 THE COURT: Mr. Keith Jablon, is that your

5 stipulation as well?

6 MR. KEITH JABLON: Yes, Your Honor.

7 THE COURT: And, Mr. Maguire, is that your

8 stipulation?

9 MR. MAGUIRE: Yes, Your Honor.

10 THE COURT: And, Mr. Kaley, is that your

11 stipulation?

12 MR. KALEY: Yes. That's my stipulation.

13 THE COURT: Okay. And we're clear that there will

14 be no evidentiary hearing required to dispose of the other

15 issues; is that correct?

16 MR. SCHOEPPL: Yes, Your Honor.

17 MR. INFELISE: Yes.

18 THE COURT: Okay. What I would like you to do is

19 to reduce your stipulation to writing and have it signed by

20 all parties.

21 Well, I don't think that's necessary. Everybody

22 has agreed on the record.

23 But what I want you to do is submit your papers

24 sooner rather than later. Maybe you can use part of

25 today's to put them together. I don't know.


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1 that.

2 THE COURT: Do that. I can't give it to you.

3 MR. KALEY: I understand.

4 THE COURT: Yeah. That applies to everybody. If

5 you all want to submit a brief on it, you may as well.

6 Okay. Does that take care of the business for

7 today?

8 MR. SCHOEPPL: On behalf of my clients, Your

9 Honor, it does.

10 MR. INFELISE: Yes, Your Honor.

11 MR. SCHOEPPL: Thank you, Your Honor.

12 THE COURT: Thank you very much. Have a good day.

13 MR. SCHOEPPL: Thank you.

14 MR. INFELISE: Thank you.

15 (Proceedings adjourned at 11:04 a.m.)

16

17 C E R T I F I C A T E

18

19 I certify that the foregoing is a correct

20 transcript from the record of proceedings in the

21 above-entitled m atter.

22

23 s\Amie R. First, RPR, CRR

24

big apple transcript of hearing 02 feb 13

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