Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 1 of 17

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1 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 1 of 17 Stephen W. Simpson Timothy N. England Stephen L. Cohen U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, DC Fax: simpsons@sec.gov / Tel englandt@sec.gov / Tel cohens@sec.gov / Tel Attorneys for the Plaintiff UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA SECURITIES AND EXCHANGE COMMISSION, v. JAMES L. ERWIN and JOINT VENTURE SOLUTIONS, INC. Plaintiff, Defendants. 2:14-CV-623 PLAINTIFF S MOTION FOR SUMMARY JUDGMENT AND MEMORANDUM OF POINTS AND AUTHORITIES Plaintiff, the Securities and Exchange Commission, pursuant to Rule 56(c of the Federal Rules of Civil Procedure and Rule 56-1 of the Local Rules of Civil Procedure, respectfully moves for entry of summary judgment against Defendants James L. Erwin and Joint Venture Solutions, Inc. This motion is accompanied by the following Memorandum of Points and Authorities in Support of this Motion; a Statement of Uncontested Material Facts, which is supported by the 1

2 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 2 of 17 Declaration of Tameka Chapman and the Exhibits thereto; and a proposed Final Judgment entering the relief requested. Dated: December 10, 2014 Respectfully Submitted, /s/ Stephen W. Simpson Stephen W. Simpson Timothy N. England Stephen L. Cohen Counsel for Plaintiff U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, DC Fax: simpsons@sec.gov / Tel englandt@sec.gov / Tel cohens@sec.gov / Tel

3 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 3 of 17 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF SUMMARY JUDGMENT Pursuant to Rule 56(c of the Federal Rules of Civil Procedure, Plaintiff Securities and Exchange Commission ( SEC of Commission respectfully submits this Memorandum of Points and Authorities in Support of its Motion for Summary Judgment against Defendants James L. Erwin and Joint Venture Solutions, Inc. The SEC has contemporaneously filed a separate Statement of Uncontested Material Facts ( SOF, supported by a declaration and exhibits, which are incorporated herein by reference to the SOF. For the reasons that follow, the Commission requests that this Court enter Judgment against each Defendant for violating Section 15(a(1 of the Securities and Exchange Act of 1934 (failure to register with the Commission as a broker-dealer [15 U.S.C. 78o] and Sections 5(a and (c of the Securities Act of 1933 (offering or sale of securities without a required registration statement and not exempt from registration [15 U.S.C. 77e(a and (c]. I. INTRODUCTION This civil enforcement action relates to Defendants involvement in two advance-fee high-yield investment scams orchestrated by Swiss-based Malom Group AG ( Malom an acronym for Make A Lot Of Money and Las Vegas-based M.Y. Consultants, Inc. (SOF 1. To identify investors for their scheme, Malom and M.Y. Consultants relied on a small network of individuals and entities who, for a percentage of the invested funds, promoted and advertised investments in Malom, recruited investors, explained how transactions with Malom worked, and helped guide investors through the process of entering into transactions with Malom. Defendants were part of this network, offering and selling Malom securities through their website, in internet advertisements, and through in-person contacts and acting as an intermediary between Malom and interested investors. Defendants efforts resulted in the successful recruitment of five 3

4 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 4 of 17 investors into transactions with Malom, who collectively lost $2,550,000. (SOF 50, 51. For their efforts, Defendants were paid $129,975 in transaction-based compensation. (SOF 63, 77, 89, 93, 96, 100. Summary judgment is appropriate in this case. As discussed below, there is no genuine issue of any material fact and the Commission is entitled to judgment as a matter of law against each Defendant. The accompanying statement of facts, fully supported by documents, Defendant Erwin s own testimony, recorded conversations, admissions, and other incontrovertible evidence, clearly establishes that over a two-year period Defendants offered and sold unregistered Malom securities over the internet and through in-person contacts, held themselves out as brokers, and acted as intermediaries between investors and Malom. In doing so, they violated the securities registration and broker-dealer registration provisions of the federal securities laws. Full relief available under the law including injunctions, disgorgement, prejudgment interest, and civil penalties is warranted against the Defendants. If the Court grants this motion and orders the relief it seeks, this case will be resolved in its entirety. II. LEGAL STANDARD ON SUMMARY JUDGMENT Summary judgment is appropriate when the pleadings, affidavits, and other supporting papers permitted by Rule 56(c demonstrate that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c; Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986. Once the movant has made such a showing, the nonmovant may not rely on the allegations in the pleadings to preclude summary judgment, but must go further and designate, through affidavits, depositions, and discovery responses, specific facts showing there is a genuine issue for trial. See Celotex Corp., 477 U.S. at 324. This showing 4

5 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 5 of 17 must do more than simply show that there is some metaphysical doubt as to the material facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986. Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial. Matsushita Elec. Indus. Co., 475 U.S. at 587. III. DEFENDANTS VIOLATED THE FEDERAL SECURITIES LAWS A. The Malom Offerings Are Securities The two offerings at issue, the joint venture offering and structured note offering, are securities. The definition of a security under Section 2(a(1 of the Securities Act of 1933 ( Securities Act and Section 3(a(10 of the Securities Exchange Act of 1934 ( Exchange Act includes an investment contract. 15 U.S.C. 77b(a(1, 78c(a(10. An investment contract includes any contract, transaction, or scheme whereby a person (1 invests money; (2 in a common enterprise; and (3 with the expectation of profits derived solely from the efforts of the promoter or a third party. S.E.C. v. W.J. Howey Co., 328 U.S. 293, (1946; S.E.C. v. Goldfield Deep Mines Co. of Nev., 758 F.2d 459, 463 (9th Cir As to the first factor, an investment of money means only that the investor must commit his assets to the enterprise in such a manner as to subject himself to financial loss. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir For the second factor, a common enterprise may be shown through either vertical or horizontal commonality. S.E.C. v. R.G. Reynolds Enters., Inc., 952 F.2d 1125, 1130 (9th Cir Vertical commonality requires that investor success be linked to the success of the promoter. See S.E.C. v. Eurobond Exch. Ltd., 13 F.3d 1334, 1339 (9th Cir. 1994; Goldfield Deep Mines Co. of Nevada, 758 F.2d at 463 (finding royalty fee paid to offeror out of investment proceeds sufficient to meet vertical commonality requirement. Finally, the third factor is met when the efforts made by those other than the investor are the undeniably significant ones, those 5

6 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 6 of 17 essential managerial efforts which affect the failure or success of the enterprise. See S.E.C. v. Glenn W. Turner Enters., Inc., 474 F.2d 476, 482 (9th Cir. 1973; see also S.E.C. v. Murphy, 626 F.2d 633, 641 (9th Cir (finding limited partnership to be a security where investors had no managerial role whatsoever. In the context of advance-fee high-yield investment schemes such as this, which generally involve transactions involving fictitious prime bank instruments, misuse of banking and finance terminology, and, generally, make no economic sense, courts have repeatedly found them to be securities. See S.E.C. v. Wilde, 2012 WL , at *4 (C.D. Cal. Dec. 17, 2012; see also S.E.C. v. Milan Group, Inc., 962 F. Supp. 2d 182, (D.D.C. 2013; S.E.C. v. Graulich, 2013 WL , at *5 (D.N.J. June 19, 2013; S.E.C. v. Deyon, 977 F. Supp. 510, (D. Me (finding that joint venture agreement to trade in prime bank instruments was investment contract. Here, all of the Howey requirements are met. First, both offerings required an investment of money. (E.g., SOF 20, 24, 95, 98. Second, under each transaction, both the investor and Malom stood to gain if a transaction was successful. Malom agreed to split 75% of the profits generated from the joint venture transactions with the investor. (E.g., SOF 22, 95, 98. In the structured note transactions, Malom would have received a success fee and an origination fee based on the total amount raised through the successful creation and sale of structured notes. (SOF 27, 65, 79, 91. In addition, in one specific structured note transaction, Malom agreed to pay the third-party investors a return of 50% after a successful transaction. (SOF 25, 65. Finally, each transaction left the investor with little or no role apart from paying the advance fee. Despite calling it a joint venture, investors had little control or influence over the venture. S.E.C. v. Professional Associates, 731 F.2d 349, 357 (6th Cir. 1984, is instructive. 6

7 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 7 of 17 There, the court found a joint venture to be a security where the agreement left so little power in the hands of the joint venturer that the arrangement was more akin to a limited partnership. Id. Here, just like in Professional Associates, the investors only role in a joint venture transaction was to propose a potential transaction and pay a fee. The joint venture agreement did not contain any provisions concerning management, provided the investor with no authority to bind Malom or the joint venture, contained no management provisions, and expressly did not create a general partnership between the investor and Malom. (SOF 21. The structured note transactions also meet this element. The investors role was limited to the payment of an advance fee. Malom was solely responsible for all processing and underwriting of the structured notes. (SOF 25, 28. The investors had no role in carrying out the transaction once they paid the advance fee. (Id. In short, Malom s offerings are securities. B. DEFENDANTS OFFERED AND SOLD UNREGISTERED MALOM SECURITIES Sections 5(a and (c of the Securities Act make it unlawful, directly or indirectly, to offer or sell a security in interstate commerce if a registration statement has not been filed as to that security, unless the transaction qualifies for one of several exemptions to registration. 15 U.S.C. 77e(a, (c; 1 S.E.C. v. Platforms Wireless Int l Corp., 617 F.3d 1072, 1085 (9th Cir To prove a violation of Section 5, the Commission must demonstrate that (1 there was not a registration statement in effect as to the underlying securities; (2 the defendants directly or indirectly sold or offered to sell the securities; and (3 the sale or offer was made through 1 Section 5(a of the Securities Act states, in relevant part, Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly (1 to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise. Section 5(c of the Securities Act states, in relevant part, It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of interstate commerce or of the mails to offer to sell... through the use of medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security. 7

8 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 8 of 17 interstate commerce or the mails. Section 5 has no scienter requirement and imposes strict liability on offerors and sellers of unregistered securities. Wilde, 2012 WL , at *13. Section 5 liability attaches to both those who directly offer or sell unregistered securities as well as those who indirectly offer or sell unregistered securities. This liability is broad, and may extend to, for example, participants in the distribution of unregistered securities, see Murphy, 626 F.2d at 649, as well as to those with a significant role in the transaction. A significant role includes those who are a necessary participant and a substantial factor in the transaction. See id. at 650. Once the SEC introduces evidence that a defendant has violated the registration provisions, the defendant then has the burden of proof in showing entitlement to an exemption. 2 Id. at 641; see also Platforms Wireless Int l Corp., 617 F.3d at Here, there is no dispute as to whether there were registration statements in effect for the securities underlying this case: there were none. (SOF 23, 29. Furthermore, there can be no dispute that the sale or offer was made through interstate commerce. (E.g., SOF 31 (internet offerings; 65 (N.H.-based investor. Throughout their participation in the scheme, Defendants directly and indirectly offered and sold Malom securities. Defendants sole business was the offer and sale of Malom s securities. (SOF 32. Defendants created a website and posted internet advertisements offering Malom s securities, (SOF 31, and Erwin offered Malom securities to many of his personal contacts, (SOF 31, 80, 96, 99, which resulted in five sales. (SOF 3, 51. Defendants were also a necessary participant and substantial factor in the sale of 2 Although it is the Defendants burden to show entitlement to an exemption, none are applicable. The offerings do not qualify for in-state or private offering exceptions given the nature of Defendants public website and internet advertisements. See 15 U.S.C. 77c(a(11, 77d(a(2. No exemptions are available under Regulation D, 17 C.F.R et seq., because the Defendants issued general solicitations in connection with the offerings, the offerings were sold to unaccredited and/or unsophisticated investors, the offerors failed to comply with the information requirements of Rule 502(b(2(b, and the aggregate offering price of Malom s securities, which includes all securities it and its agents illegally offered, exceeded the $5 million threshold for exemption. 8

9 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 9 of 17 Malom securities to the five clients he introduced to Malom. Defendant Erwin identified the clients, explained and sold them on Malom s offerings, and provided them with transactional documents. (See, e.g., SOF 30-45, 72, 81, 83, 93, 96, Accordingly, the Court should enter summary judgment against Defendants Erwin and Joint Venture Solutions with respect to the Commission s Section 5 claims. C. DEFENDANTS FAILED TO REGISTER AS BROKER-DEALERS Section 15(a(1 makes it illegal for a broker to effect any transaction in, or to induce or attempt to induce the purchase or sale of any security unless such broker is registered with the Commission or, in the case of a natural person, is associated with a registered broker-dealer. 15 U.S.C. 78o(a(1. A broker, as defined by Section 3(a(4 of the Exchange Act, is any person engaged in the business of effecting transactions in securities for the account of others. Id. Scienter is not required under Section 15(a(1. S.E.C. v. Radical Bunny, LLC, 2011 WL , at *6 (D. Ariz. Apr. 12, 2011, aff d sub nom. U.S. S.E.C. v. Radical Bunny LLC, 532 F. App x 775 (9th Cir Activities that indicate a person may be a broker are, inter alia: (1 holding oneself out as a broker; (2 active solicitation of investors to purchase securities; (3 involvement in negotiations between the issuer and the investor; and (4 receipt of transactionrelated compensation. See S.E.C. v. Earthly Mineral Solutions, Inc., 2011 WL , at *3 (D. Nev. Mar. 23, 2011; S.E.C. v. Hansen, 1984 WL 2413 (S.D.N.Y. Apr. 6, Neither Defendant was registered as, or associated with, a broker-dealer, (SOF 5-6, and each performed the activities that indicate each Defendant was acting as a broker. Through their website, internet advertisements, and in-person contacts by Defendant Erwin (on behalf of himself and Defendant Joint Venture Solutions, Defendants actively sought investors for Malom over two years. (E.g., SOF 30, Defendants held themselves out as brokers to others, 9

10 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 10 of 17 and Erwin described his relationship to his clients as one that was fiduciary in nature. (SOF 53. Defendants participated in key points of each transaction, acting as intermediaries between investors and Malom by arranging meetings and calls between investors and Malom s representatives, (SOF 60, 72, participating in negotiations between investors and Malom, (SOF 73-74, and remaining engaged in the relationships between investors and Malom after the transactions consummated and ultimately failed, (SOF 57, Finally, Defendants received transaction-based compensation in that they were paid commissions based on the amounts invested by the investors they solicited. (SOF Accordingly, the Court should enter summary judgment against Defendants Erwin and Joint Venture Solutions with respect to the Commission s Section 15(a(1 claims. IV. REQUESTED RELIEF SHOULD BE GRANTED AS TO EACH DEFENDANT A. Injunctions as to Each Defendant The Commission seeks permanent injunctions against Defendants enjoining them from engaging in future violations of Sections 5(a and (c of the Securities Act and Section 15(a of the Exchange Act. 4 Additionally, the Commission seeks a permanent injunction against Defendants enjoining them from directly or indirectly participating in the issuance, offer, or sale of any security, including but not limited to joint venture agreements, proofs of funds, bank 3 Several facts cited herein are supported by, among other corroborating documents and testimony, the testimony of Anthony Brandel of M.Y. Consultants. During his deposition, Mr. Brandel exercised his right against self-incrimination in response to questions regarding Defendants. Given the compatibility of interests in the outcome of this litigation between Defendants and Brandel, who faces pending civil and criminal charges related to this scheme, this Court should draw an adverse inference against Defendants based on Brandel s invocation of the privilege. See e.g., LiButti v. United States, 107 F.3d 110, 123 (2d Cir. 1997; Coquina Investments v. TD Bank, N.A., 760 F.3d 1300 (11th Cir. July 29, Such an inference would be trustworthy under all the circumstances, and would accommodate Brandel s right against self-incrimination while permitting civil litigation to proceed. See Mitchell v. United States, 526 U.S. 314, 328 ( See Proposed Order at II-III, filed as an attachment to this this Motion. 10

11 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 11 of 17 guarantees, medium term notes, standby letters of credit, structured notes, and similar instruments, with the exception of the purchase or sale of securities listed on a national securities exchange. 5 The Commission is entitled to an injunction if it can show a reasonable likelihood that the defendant will violate the securities laws in the future. See Murphy, 626 F.2d at 655. To determine the likelihood of future violations, the court must evaluate the totality of the circumstances including past violations. Id. Under this totality of the circumstances test, courts may consider the following factors: the degree of scienter involved; the isolated or recurrent nature of the infraction; the defendant s recognition of the wrongful nature of his conduct; the likelihood, because of defendant s professional occupation, that future violations might occur; and the sincerity of his assurances against future violations. SEC v. Fehn, 97 F.3d 1276, 1295 (9th Cir As described above, Defendants continuously engaged in the illegal conduct from 2009 through 2011, and only took offline their website that offered unregistered securities after being prompted to do so by the Commission staff in early (SOF 30. Although evidence of scienter is not required to prevail on the claims in this matter, it is relevant in support of injunctive relief. Defendant Erwin had no background or training in finance or securities and no relevant work experience outside originating mortgage loans, but convinced five parties to invest over $2.5 million dollars in exotic high-yield trading programs with Malom in just two years. (SOF 5, In doing so, he offered and sold these securities and acted as a broker or dealer in connection with these transactions with complete ignorance of the numerous red flags of fraud permeating Malom s offering materials. (SOF Out of the $129,975 Defendants received for successfully recruiting these five investors into transactions with Malom, Defendants have not returned any funds to them. (SOF 64. Moreover, Erwin 5 See Proposed Order at IV, filed as an attachment to this Motion. 11

12 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 12 of 17 attempted to sell Malom securities to dozens of additional investors during this time. (SOF During the time Erwin promoted investments with Malom, these activities provided Erwin with substantially all of his income. As Erwin remains unemployed and transactions for which he has received some sort of fee have been his only substantial source of income for many years, the likelihood he will engage in similar conduct is high. Erwin has not made any assurances that he will refrain from future misconduct and, during his investigative testimony, continually tried to minimize his role by asserting he only introduced parties to Malom when in fact he actively shepherded them through transactions. (E.g., SOF 48. Therefore, the Court should permanently enjoin Defendants as described above. The Commission has contemporaneously filed proposed final judgments as to Defendants that include proposed injunctions. B. Disgorgement and Prejudgment Interest The Commission seeks disgorgement of $129,975 and prejudgment interest of $14, from Defendants on a joint and several basis, for a total of $144, Allowing a defendant to retain any money from an unlawful transaction or scheme would allow the perpetrator to unjustly profit. See Platforms Wireless, 617 F.3d at A district court has broad equitable powers to order disgorgement from individuals who have violated the securities laws. Id. The amount of disgorgement includes all gains flowing from illegal activities. Id. at To determine the appropriate disgorgement amount, the Commission need only show a reasonable approximation of a defendant s ill-gotten gains. Id. The burden then shifts to the defendant to demonstrate that the disgorgement figure was not a reasonable approximation. Id. Joint and several liability is appropriate where, as here, defendants collaborate to violate the 12

13 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 13 of 17 securities laws. Id. at Finally, disgorgement typically includes prejudgment interest, such that wrongdoers do not profit from their illegal conduct. See id. at 1100; S.E.C. v. Cross Fin. Servs., Inc., 908 F. Supp. 718, 734 (C.D. Cal The Commission computes prejudgment interest according to the underpayment rate used by the Internal Revenue Service pursuant to 26 U.S.C. Section 6621(a(2. See Platforms Wireless Int l Corp., 617 F.3d at 1099 (affirming district court s award of prejudgment interest based on the underpayment rate used by the Internal Revenue Service; (SOF Based on this method, and calculating prejudgment interest from the date of the last payment received by Defendants until the date of this motion, prejudgment interest is $14, (SOF Based on the Commission s review of Defendants bank records, M.Y. Consultants bank records, which was largely responsible for coordinating payments to Defendants, and Defendants own interrogatory responses, the total amount to be disgorged by Defendants, on a joint and several basis, is $144, C. Civil Penalties The Commission also requests maximum civil penalties against each of the Defendants. Unlike disgorgement, civil penalties are not only designed to deter future violations of securities laws but are imposed to punish the individual violator. CMKM Diamonds, 635 F. Supp. 2d 1185, (D. Nev Although civil penalties are determined by the court in light of the facts and circumstances, Exchange Act 21(d(3(B(i [15 U.S.C. 78u(d(3(B(i]; Securities Act 20(d(2(A [15 U.S.C. 77t(d(2(A], courts generally calculate civil penalties 6 The funds paid to Defendants were deposited into accounts belonging to Joint Venture Solutions and Nationwide Affordable Auto Sales. The deposits made into Nationwide Affordable Auto Sales s accounts were made in 2009; Joint Venture Solutions did not have its own account until November (SOF 9. Given Erwin s complete control over these entities and his failure to follow corporate formalities, (SOF 7-9, 13-16, Erwin and these entities are alter egos. See S.E.C. v. Elmas Trading Corp., 620 F. Supp. 231, 233 (D. Nev aff d, 805 F.2d 1039 (9th Cir

14 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 14 of 17 in SEC cases in one of two ways. See generally CMKM Diamonds, Inc., 635 F. Supp. 2d at First, using a per-violation approach, a court may multiply a defendant s violations by a dollar amount that conforms to one of three penalty ceilings outlined in Securities Act Section 20(d(2 and Exchange Act Section 21(d(3(B, which are graduated based upon the severity of the conduct. See id. Third tier penalties set the highest ceiling and are available when the securities law violation involved deliberate or reckless disregard of a regulatory requirement [and] such violation directly or indirectly resulted in substantial losses or created a significant risk of substantial loss to other persons, Exchange Act 21(d(3(B [15 U.S.C. 78u(d(3(B], which is applicable in this case. For individual defendants, the maximum third tier penalty is the greater of $150,000 per violation or the gross amount of pecuniary gain to the defendant as a result of the securities law violation. Id. For entities, the maximum third tier penalty is $750,000 or the gross amount of pecuniary gain to the defendant as a result of the securities law violation. Id. Under the per violation approach, courts have calculated violations in a variety of ways where defendants violated multiple provisions of the securities laws and/or the same provisions multiple times. Some courts have approved penalties for each violation of a statutory provision, see, e.g., SEC v. Jasper, 883 F. Supp. 2d 915, 931 (N.D. Cal (assessing third tier penalties for each securities law provision/count charged but not for each of numerous SEC filings and books and records implicated over five-year stock options backdating scheme. Other courts, including in prime bank cases similar to the case at bar, have multiplied a single penalty by the number of investors affected, see, e.g., SEC v. Kenton Capital, Ltd., 69 F.Supp.2d 1, 17 (D.D.C (imposing twelve penalties, one for each of the twelve investors defrauded; cf. Earthly Mineral Solutions, Inc., 2011 WL , at *5 (finding that 14

15 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 15 of 17 the court was unable to calculate an appropriate penalty absent an exact number of investors harmed. Here, given Defendants reckless disregard for the registration requirements or the Securities Act and the Exchange Act, and given the substantial losses that resulted from their violations of those requirements, third-tier penalties would be appropriate under a per violation approach. Second, a court may impose a penalty equal to a defendant s gross pecuniary gain. See CMKM Diamonds, 635 F. Supp. 2d at Courts will typically rely on the second approach, using the gross amount of pecuniary gain as a yardstick for determining penalties, only where the number of transactions at issue makes imposition of a per-violation penalty both practically difficult and grossly disproportionate. SEC v. Brandonisio, 2013 WL , at *4-5 (D. Nev. Sept. 24, 2013 (finding a penalty equal to pecuniary gain appropriate where complex pump and dump scheme involved potentially millions of transactions and misrepresentations; CMKM Diamonds, Inc., 635 F. Supp. 2d at (declining to impose $10,000 penalties for each of 569 transactions, or in the alternative, $100,000 penalties for each of 40,000 investors defrauded, and instead imposing a penalty equal to the defendant s pecuniary gain. Here, Defendants solicited and offered securities to many potential investors, managing to sell unregistered securities and acting as an unregistered broker to five of them. (SOF Under a per-violation approach based on these five investors, total penalties could amount to $1.5 million as to Erwin and $7.5 million as to Joint Venture Solutions. However, the Court may also wish to note that it adopted the pecuniary gain approach in S.E.C. v. Malom Group AG, when it entered judgments against several defaulting parties and ordered them to pay a civil penalty equal to their gross pecuniary gain. See Final Judgments, in S.E.C. v. Malom Group AG, 15

16 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 16 of 17 2:13cv2280 (D. Nev., at [dkt ]. Here, Defendants gross amount of pecuniary gain is collectively $129,975. Because defendants were alter egos, it is nearly impossible to determine how the defendants divided their spoils. S.E.C. v. Amerindo Inv. Advisors Inc., 2014 WL , at *11 n. 11 (S.D.N.Y. May 6, In similar situations, some courts have found that, [w]here multiple defendants mutually benefitted from the same gains, the best calculation of a single defendant s gain may be the total gains obtained by the group through that defendant s violations. Id.; see also S.E.C. v. Great Am. Techs., Inc., 2010 WL , at *2 (S.D.N.Y. Apr. 8, Given the near impossibility of untangling Defendants gains in this case, and should the Court adopt the pecuniary gain approach to calculating civil penalties, it should order each Defendant to be liable for a civil penalty equal to Defendants collective gain. CONCLUSION For the reasons stated above, the Commission s Motion for Summary Judgment against Defendants James L. Erwin and Joint Venture Solutions, Inc. should be granted. Date: December 10, 2014 Respectfully Submitted By: /s/ Stephen W. Simpson Stephen W. Simpson Timothy N. England Stephen L. Cohen Counsel for Plaintiff U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, DC Fax: simpsons@sec.gov / Tel englandt@sec.gov / Tel cohens@sec.gov / Tel

17 Case 2:14-cv APG-PAL Document 13 Filed 12/10/14 Page 17 of 17 PROOF OF SERVICE I, Stephen W. Simpson, declare that I served on counsel for Defendants the foregoing Motion for Summary Judgment and its supporting papers on December 10, 2014 via the Court s ECF system: /s/ Stephen W. Simpson 17