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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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