# Securities and Exchange Commission v. Zachary J. Horwitz

> District Court, C.D. California · July 12, 2021

URL: https://www.frixlaw.com/law-library/cases/10041359

## Case

- **Court:** District Court, C.D. California
- **Decided:** July 12, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

Present: The Honorable CHRISTINA A. SNYDER
Catherine Jeang Laura Elias N/A
Deputy Clerk Court Reporter / Recorder Tape No.
Attorneys Present for Plaintiffs: Attorneys Present for Defendants:
Kathryn Wanner Michael Quinn
Proceedings: DEFENDANT’S MOTION TO STAY PROCEEDINGS (Dkt. 46,
filed June 7, 2021)
I. INTRODUCTION
On April 5, 2021, the Securities and Exchange Commission (“SEC”) filed this civil
enforcement action against defendants Zachary J. Horwitz (“Horwitz”) and linMM
Capital, LLC (“linMM”) (collectively, “defendants”). Dkt. 1 (“Compl.”). The complaint
alleges two claims for: (1) violation of Section 10(b) of the Securities Exchange Act of
1934 (the “Exchange Act”), 15 U.S.C. § 78](b), and SEC Rule 10b-5, 17 C_F_R. §240.10b-
5(b); and (2) violation of Section 17(a) of the Securities Act of 1933 (the “Securities Act’).
Compl. 4 83-93. In brief, the SEC alleges that between March 2014 and December 2019,
defendants conducted a fraudulent offering of securities which was also a Ponzi scheme,
all in violation of the federal securities laws. Compl. §4. According to the SEC, defendants
misrepresented to investors that promissory notes issued by 1inMM would be repaid using
the proceeds from movie licensing deals with major media companies, which licensing
deals did not exist. Id.
On April 6, 2021, the Court issued an order granting the SEC’s application to freeze
“all assets, funds or other property of Defendants,” including, but not limited to, certain
real property and bank accounts. Dkt. 18 (“Asset Freeze Order”). On May 14, 2021, the
Court issued a further order extending the order freezing all of defendants’ assets “pending
further action by this Court.” Dkt. 43. Those orders remain in full force.
On May 4, 2021, the United States Attorney’s Office for the Central District of
California filed an indictment charging defendant Horwitz with: (1) five counts of
securities fraud, in violation of Section 10(b) of the Exchange Act, SEC Rule 10b-5, and
15 U.S.C. §78ff; (2) six counts of wire fraud, in violation of 18 U.S.C. §1343; and (3) two
counts of aggravated identify theft, in violation of 18 U.S.C. § 1028A(a)(1). United States

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

v. Horwitz, No. 2:21-cr-00214-MCS-1 (the “Criminal Action”), dkt. 25 (“Indictment”).
The United States seeks forfeiture as part of any criminal sentence, pursuant to 18 U.S.C.
§§ 981(a)(1)(c), 982, and 1028, and 28 U.S.C. § 2461(c). As a condition of his pre-trial
release, Horwitz is prohibited from selling, transferring, or giving away any asset valued
at more than $10,000 without obtaining permission from the Court. Criminal Action dkt.
19. In its notice of pendency of other actions or proceedings, the SEC described the
allegations in the criminal indictment as “virtually identical to the allegations of the SEC
in the present action.” Dkt. 42.
On June 7, 2021, Horwitz filed the instant motion to stay this action pending
resolution of the Criminal Action. Dkt. 46 (“Mot”). On June 21, 2021, the SEC filed an
opposition. Dkt. 47 (“Opp’n”). Horwitz filed a reply on June 28, 2021. Dkt. 48 (“Reply”).
The Court held a hearing on July 12, 2021. Having carefully considered the
parties’ arguments, the Court finds and concludes as follows.
I. BACKGROUND
In the civil case, the SEC alleges that between March 2014, and December 2019,
defendants raised over $690 million from investors through a fraudulent scheme wherein
defendants misrepresented that Netflix and Home Box Office (“HBO”) were linMM’s
“strategic partners,” and that defendants would acquire and license the “distribution rights
in movies to HBO, []| Netflix,” and other major media companies, and “use[]| the profits
from those transactions to repay investors in linMM’s promissory notes.” Id. § 5.
According to the complaint, Horwitz, who is a Los Angeles based actor, was the sole
principal and managing member of 1inMM throughout the relevant period. Id. 17-18.
Defendants allegedly raised money from investors by issuing promissory notes, which
Horwitz represented would fund transactions regarding the nights to specific movies. Id.
20-25. The SEC alleges that the promissory notes generally guaranteed investors profits
of between 35 and 45 percent at maturity, and that Horwitz told investors that he and
linMM would profit from those transactions by licensing the movie nghts to HBO or
Netflix for distribution, generally in Latin America, in an amount exceeding the maturity
payments on the promissory notes, and by retaining certain additional distribution rights.
Id. 4] 26-27.
The SEC alleges, however, that defendants had no relationship or licensing
arrangement with HBO or Netflix and, instead, “Horwitz misappropriated investor funds

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

to pay putative returns on earlier investments” and for his personal use, including a $5.7
million home purchase. Id. §{{ 8-14; 56-60. The SEC alleges that defendants “did not
acquire the movie rights funded by the [p]romissory [n]otes and did not sell those rights to
HBO or Netflix.” Id. § 49. In addition, the SEC alleges that on at least three occasions,
“Horwitz |...] used investor funds to pay purported returns on previously issued notes” and
used those payments in his efforts to induce investors to make further investments and
recruit downstream investors. Id. §{ 50-51, 53. The SEC alleges that in late 2019,
defendants stopped making payments to investors for outstanding 1iMM promissory
notes, and that defendants subsequently provided false explanations to investors as to why
the payments had stopped, including by claiming that negotiations with Netflix and HBO
were delayed. Id. §§ 62-77. As recently as March 12, 2021, Horwitz allegedly again
promised investors that payment was “forthcoming” and suggested that investors could
“provide funds to pay linMM legal counsel” in connection with efforts to obtain payment
from HBO. Compl. {| 75-77.
The Indictment returned in the Criminal Action on May 4, 2021, alleges
substantially the same conduct alleged by the civil complaint. See generally Indictment.
Horwitz now seeks to stay this case pending resolution of the criminal proceeding.
Il. LEGAL STANDARD
“The Constitution does not ordinarily require a stay of civil proceedings pending the
outcome of criminal proceedings.” Keating v. Office of Thrift Supervision, 45 F.3d 322,
324 (9th Cir. 1995), cert. denied, 516 U.S. 827 (1995). Parallel civil and criminal
proceedings are unobjectionable under Ninth Circuit precedent unless such proceedings
substantially prejudice the rights of the parties involved. Id, “The decision whether to stay
civil proceedings in the face of a parallel criminal proceeding should be made ‘in light of
the particular circumstances and competing interests involved in the case.’” Id. (quoting
Fed. Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989)). The party
proposing a stay bears the burden of proving that a stay is warranted. Clinton v. Jones, 520
U.S. 681, 708 (1997).
A district court is vested with the discretion to stay an action based on its inherent
authority to control its own docket. Landis v. N. Am. Co., 299 U.S. 248, 254 (1936).
Although there is no requirement that a court stay a civil action pending the outcome of a
related criminal proceeding, a court may choose to do so “when the interests of justice
seem | | to require such action.” Keating, 45 F.3d at 324 (quotation marks omitted).

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

In deciding whether to grant a motion to stay civil proceedings in favor of parallel
criminal proceedings, courts in the Ninth Circuit must consider the “extent to which the
defendant’s [F |ifth [A }mendment rights are implicated.” Id. In addition, Keating instructs
that courts should consider the following five factors: (1) the interest of the plaintiff in
proceeding expeditiously with the litigation, and the possibility that plaintiffs would be
prejudiced by a delay; (2) the burden which the proceedings may impose on defendants;
(3) the convenience of the court and the efficient use of judicial resources; (4) the interests
of persons not parties to the civil litigation; and (5) the interest of the public in the civil and
criminal litigations. Id. at 324-25. Thus, while the extent to which a defendant’s Fifth
Amendment rights are implicated is a “significant factor” to be considered, it is “only one
consideration to be weighed against others.” Id. Nonetheless, other than cases involving
bad faith or malice on the part of the government, “the strongest case for deferring civil
proceedings until after completion of criminal proceedings is where a party under
indictment for a serious offense is required to defend a civil or administrative action
involving the same matter.” SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1375-76 (D.C.
Cir. 1980). In such cases, allowing the civil action to proceed may undermine the
defendant’s Fifth Amendment privilege, expand criminal discovery beyond the limits of
Federal Rule of Criminal Procedure 16(b), expose the defense strategy to the prosecution
before the criminal trial, or cause other prejudice. Id. at 1376. Accordingly, where the
civil proceeding wholly or substantially overlaps with the criminal proceeding, a court may
be justified in staying the civil case, deferring civil discovery, or taking other protective
measures. Id.
IV. DISCUSSION
A. Fifth Amendment Privilege
In this case, Horwitz’s Fifth Amendment concerns are substantial, but those
concerns do not carry the same force with respect to 1inMM.
Horwitz has been indicted on serious criminal charges: five counts of securities
fraud, six counts of wire fraud, and two counts of aggravated identity theft. Criminal
proceedings have commenced in a parallel case, United States v. Zachary Joseph Horwitz,
No. 2:21-cr-00214-MCS, before another court in this district. Compare Molinaro, 889 F.2d
at 903 (“The case for staying civil proceedings is a far weaker one when no indictment has
been returned, and no Fifth Amendment privilege is threatened.”). In addition, there is

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES —- GENERAL ‘Oo’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

substantial overlap between the SEC’s allegations in the civil complaint and the charges
upon which Horwitz has been indicted. Both cases rest upon claims that Horwitz operated
linMM as a Ponzi scheme and defrauded investors out of hundreds of millions of dollars
by falsely representing that investors in linMM’s promissory notes would realize
substantial profits from 1inMM_’s fictitious movie licensing agreements with HBO, Netflix,
and other media companies. See Comp. {J 4-16; Indictment 4 5-7. In addition, both cases
allege that Horwitz misused the interstate wires to induce investments from victims of the
alleged Ponzi scheme: Compl. {[] 38-39, Indictment 4 8-11, and that Horwitz falsely used
the names and signatures of media executives in communications sent in furtherance of the
scheme. Compl. 67, Indictment {J 12-13.
Because the factual allegations in these parallel actions are substantially the same,
Horwitz argues that he will likely assert his Fifth Amendment privilege in this civil action.
Horwitz further contends that he will thereby “suffer potentially severe consequences” in
the form of a negative inference based on his assertion of his Fifth Amendment right. Mot.
at 5 (citing S.E.C. v. Colello, 139 F.3d 674, 677 (9th Cir. 1998)( “Parties are free to invoke
the Fifth Amendment in civil cases, but the court is equally free to draw adverse inferences
from their failure of proof.”).
The SEC argues that Horwitz’s motion fails to satisfy the Keating standard because
he fails to make an adequate showing as to how his Fifth Amendment mght would be
prejudiced if the instant action were to proceed. Opp’n at 7-8. The Court finds that
argument without merit. As numerous courts have recognized, “other than cases involving
bad faith or malice on the part of the government, the strongest case for deferring civil
proceedings until after completion of criminal proceedings is where a party under
indictment for a serious offense is required to defend a civil or administrative action
involving the same matter,” which is precisely the situation presented here. See S.E.C. v.
Alexander, No. 10-CV-04535-LHK, 2010 WL 5388000, at *3 (N.D. Cal. Dec. 22, 2010)
(quoting Dresser, 628 F.2d at 1375-76); Carlson v. City of Redondo Beach, No. 2:20-
00259-ODW-AFMx, 2020 WL 7714699, at *2 (C.D. Cal. Dec. 29, 2020) (“A stay is
warranted where a grand jury returns a criminal indictment and where there is a large
degree of overlap between the facts involved in both cases.”). Where, as here, the factual
allegations in parallel criminal and civil proceedings “wholly or substantially overlap[,]” a
comparison of the complaint with the indictment is sufficient to allow the Court to conclude
that the defendant’s Fifth Amendment right is implicated to a significant degree, and no

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

additional showing is required.! See Alexander, 2010 WL 5388000, at *3 (“where the civil
proceeding wholly or substantially overlaps with the criminal proceeding, a court may be
justified in staying the civil case”); eBay, Inc. v. Digital Point Sols.. Inc., No. C 08-4052
JF (PVT), 2010 WL 702463, at *3 (N.D. Cal. Feb. 25, 2010) (Fifth Amendment concerns
weigh in favor of a stay “when simultaneous civil and criminal proceedings involve the
same or closely related facts.”). Accordingly, the Court finds that these Fifth Amendment
concerns are significant and weigh in favor of a stay as to Horwitz .”
However, Fifth Amendment concerns do not support a stay of discovery with respect
to lmMM. The SEC argues that 1inMM, a corporate entity that was not indicted, enjoys
no Fifth Amendment privilege and, as such, should designate “a lawyer or agent [..] to
answer discovery on its behalf.” Opp’n at 10-11. It is beyond dispute that a corporate

Courts in other jurisdictions have similarly concluded that overlapping allegations in
parallel civil and criminal proceedings are sufficient to demonstrate that a defendant’s Fifth
Amendment right is implicated. See e.g. S.E.C. v. Arias, No. CV 12-2937 ADS GRB, 2012
WL 4849151, at *3 (E.D.N.Y. Sept. 14, 2012), report and recommendation adopted, No.
12 CV 2937 DRH GRB, 2012 WL 4849346 (E.D.N.Y. Oct. 11, 2012) (“it is difficult to
imagine how defendants could answer the Complaint in this matter without implicating
their rights against self-incrimination’”).
? None of the out of circuit authority upon which the SEC relies compels a different
conclusion. That is because none of the SEC’s cases address factual circumstances
analogous to those present here, where a defendant who has not been convicted and has
never offered testimony in the civil action faces a directly parallel criminal proceeding.
For example, in United States v. $ 506,641.00 in U.S. Currency, No. 93 C 1603, 1996 U.S.
Dist. LEXIS 1766, * 10 (N.D. Ill. Feb. 20, 1996), no criminal proceeding was pending and,
as such, the court required some showing as to how potential criminal charges might relate
to the civil action.; see also Int'l Bus. Machines Corp. v. Brown, 857 F. Supp. 1384, 1390
(C.D. Cal. 1994) (individual defendants had already provided deposition testimony in civil
action and “therefore [had] no remaining Fifth Amendment privilege to assert.). In
addition, in United States v. Certain Real Property 566 Hendrikson Boulevard, 986 F.2d
990, 996-97 (6th Cir. 1993) the Court of Appeals for the Sixth Circuit found that the district
court did not err in failing to stay a federal civil case pending state criminal proceedings
because “not only did claimant fail to seek a stay from the District Court, he filed a cross
motion for summary judgment.”

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

entity has no privilege against self-incrimination. Braswell v. United States, 487 U.S. 99,
102 (1988): United States v. Kordel, 397 U.S. 1, 7-8 & n. 9 (1970) (collecting cases). As
such, because 1inMM has no Fifth Amendment privilege to assert, “its corporate books
and records are not “private papers’ protected by the Fifth Amendment.” Chrome Hearts
LLC V. Old Sch. Fairfax Inc., No. CV 2:16-09080-BRO (JPRx), 2017 WL 8943005, at *3
Cal. Aug. 25, 2017). Likewise, it is well established that “a custodian of corporate
records cannot assert the Fifth Amendment privilege as to the mere production of corporate
records because ‘the custodian of corporate or entity records holds those documents in a
representative rather than personal capacity.” Id. (quoting Braswell, 487 U.S. at 109-110).
Accordingly, the Court finds that Fifth Amendment concerns do not warrant staying the
production of documents by linMM. Here, Horwitz is the “sole member and manager” of
linMM and therefore appears to be the “custodian” of 1inMM’s corporate records. As
such, Horwitz cannot claim a Fifth Amendment privilege as to the non-testimonial
production of 1inMM’s corporate records, “even if the contents of the records tend to be
incriminating.” Sanrio, Inc. v. Ronnie Home Textile Inc., No. 2:14-CV-06369-RSWL,
2015 WL 1062035, at *2 (C.D. Cal. Mar. 10, 2015). In addition, there is no indication that
witnesses with knowledge regarding linMM, other than Horwitz, will invoke the Fifth
Amendment and decline to testify in this action.
As such, the Court finds that this factor weighs in favor of a stay as to Horwitz,’ but
does not favor a stay as to limMM. See e.g. Almont Ambulatory Surgery Ctr., LLC v.
UnitedHealth Grp., Inc., No. 14-cv-3053-MWF-AFM(x), 2018 WL 11242039, at *4 (C.D.
Cal. Apr. 6, 2018) (Fifth Amendment concerns favored stay as to indicted defendant, but
not as to other unindicted defendants).
B. Other Keating Factors
As noted above, the Ninth Circuit has explained that the extent to which the pending
civil action implicates Fifth Amendment considerations is a “significant factor” but “is only
one consideration to be weighed against” the remaining Keating factors. Keating, 45 F.3d
at 326. A balancing of the Keating factors is a “fact-specific” exercise, and “courts’

3 This is particularly the case in light of the Court’s prior orders freezing all of defendants’
assets, which ameliorate the risk that Horwitz could dissipate assets during a stay. As noted
supra at section I, those orders remain in full force.

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

treatment and weighing of the factors varies widely.” Petrov v. Alameda Cty., No. 16-CV-
04323-YGR, 2016 WL 6563355, at *4 (N_D. Cal. Nov. 4, 2016).
First, the SEC argues that it has a strong interest in “timely pursuing civil actions”
in order to “obtain orders that ill-gotten gains be disgorged, and seek the imposition of civil
penalties to punish wrongdoers for their violations of the federal securities laws.” Opp’n at
5-6. The SEC also contends that it would be prejudiced by a stay because the delay “may
affect the availability of witnesses and documents and the quality of testimony.” Id. at 6.
The Court recognizes that as the agency responsible for enforcing the federal securities
laws, the SEC has a significant interest in “be[ing] able to respond quickly to securities
violations and seek prompt judicial redress.” Sec. & Exch. Comm'n v. Braslau, No. 14-
01290-ODW (AJWX), 2015 WL 9591482, at *3 (C.D. Cal. Dec. 29, 2015). Even in light
of the Court’s orders freezing defendants’ assets, which ameliorate the risk that the SEC
will ultimately be unable to recover from defendants, the Court concludes here that the
potential for delay in the SEC’s ability to pursue this enforcement action is significant.
Likewise, it is also significant that a stay would “increase the odds that key witnesses may
become unavailable, that their memories will fade, and that documents in their possession
may be lost.” Id. Accordingly, this factor weighs in favor of denying a stay.
Second, the Court must consider the potential prejudice to defendants. As discussed
above, this civil proceeding implicates Horwitz’s Fifth Amendment rights to a significant
degree, and allowing discovery in the case against Horwitz to proceed in parallel with the
Criminal Action would effectively force Horwitz to choose between defending himself in
the civil case and preserving his Fifth Amendment nght. In addition, Horwitz argues that,
absent a stay, the government could “avoid the limitations on criminal discovery by using
the SEC Case to pursue wide ranging discovery” outside the bounds of Federal Rule of
Criminal Procedure 16(b). “These are both well-recognized consequences of parallel
criminal and civil proceedings that may support a stay or deferral of discovery in cases
where delay would not seriously injure the public interest or otherwise cause prejudice.”
Alexander, 2010 WL 5388000, at *5. Therefore, the Court finds that permitting this case
to proceed as to Horwitz “could seriously burden [Horwitz] and prejudice his criminal
defense.” Id.
The potential prejudice to linMM is significantly less, because 1inMM 1s not a
defendant in the criminal action and has no Fifth Amendment right to assert. The Court
acknowledges, however, that 1inMM may suffer prejudice as the alleged issuer of the

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

promissory notes at issue 1f Horwitz asserts his Fifth Amendment privilege, thereby
impairing its ability to defend itself in these proceedings. See e.g. CEPB v. Glob. Fin.
Support, Inc., No. 3:15-cv-02440-GPC-WVG, 2016 WL 2868698, at *3 (S.D. Cal. May
17, 2016).
Third, the convenience of the Court and judicial efficiency weighs against a
complete stay, because “[a]n indefinite stay of this entire action pending completion of the
Criminal Action is unlikely to prove more efficient or convenient to the Court.” Almont
Ambulatory Surgery Ctr., 2018 WL 11242039, at *6 (noting that courts have recognized
that this factor “normally does not favor granting a stay, because the court has an interest
in clearing its docket.”’); see also Gen. Elec. Co. v. Liang, No. 2:13-cv-08670-DDP-VBK,
2014 WL 1089264, at *6 (C.D. Cal. Mar. 19, 2014) (quoting Molinaro, 889 F.2d at 903)
(same). The Court’s interest in managing its docket would not benefit from what could be
an “indeterminate stay on discovery as to the central witnesses] in this action.” See Est. of
Morad v. City of Long Beach, No. CV 16-06785-MWE AJW(x), 2017 WL 5187826, at *9
Cal. Apr. 28, 2017). With respect to a stay as to Horwitz only, however, courts have
recognized some efficiencies associated with allowing a parallel criminal action to proceed
first, including “insuring that common issues of fact will be resolved and subsequent civil
discovery will proceed unobstructed by concerns regarding self-incrimination.” See e.g.
Jones v. Conte, No. 3:04-cv-5312-SI, 2005 WL 1287017, at *2 (N.D. Cal. Apr. 19, 2005)
(quotation marks omitted).
Fourth, the SEC argues that investors have an interest in proceeding to discovery
and trial of this case “before memories continue to fade, and other evidence grows stale.”
Opp’n at 7. As noted above with respect to the potential prejudice to the SEC, that concern
is significant. In addition, although the SEC does not so argue, the Court notes that the
third-party investors “have an interest in obtaining justice” and recovering compensation
through timely litigation of the civil proceeding, which weighs against a complete stay of
this action. See Consumer Fin. Prot. Bureau v. Glob. Fin. Support, Inc., No. 15-CV-02440-
GPC-WVG, 2016 WL 2868698, at *5 (S.D. Cal. May 17, 2016): but see Alexander, 2010
WL 5388000, at *6 (recognizing significance of investor interests, but declining to find
that those interests outweighed burden on indicted criminal defendant).
Fifth, the Court considers the public’s interest in the pending civil and criminal
litigation. The SEC argues that this factor weighs against any stay in this action, because
there is “a strong public interest in the prompt enforcement of the securities laws.” Opp’n

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

at 6. In particular, the SEC argues that the public “has an interest in seeing that securities
frauds are resolved quickly” because delay “could erode public confidence in the securities
market.” Id. at 7 (quoting SEC. v. CMKM Diamonds, Inc., No. 2:08-CV-00437-LRH,
2011 WL 1343004, at *4 (D. Nev. Apr. 7, 2011)). On the other hand, as Horwitz argues,
the public also has a strong interest in ensuring the integrity of criminal proceedings. See
Mot. at 9; S.E.C. v. Nicholas, 569 F. Supp. 2d 1065, 1072 (C.D. Cal. 2008) (concluding
that the parallel criminal case was “of primary importance to the public, the Defendants,
and the Court” because the criminal case could vindicate the public’s “vital interest in the
integrity of public markets, efficient punishment of wrongdoers, and deterrence of similar
conduct by other” potential violators of the securities laws); see also Petrov, 2016 WL
6563355, at *7 (same).
Here, the Court finds that the public has a strong interest in civil enforcement of the
securities laws that weighs against a complete stay of this action. However, the Court finds
that “such interest does not outweigh the public’s interest in fair criminal proceedings” as
to Horwitz, who is the sole defendant under indictment. See Id.
Weighing each of the Keating factors, the Court concludes that a partial stay will
best preserve the competing interests presented here. Accordingly, the Court will GRANT
in part the motion to stay as to Horwitz, as an individual, pending the resolution of the
Criminal Action. However, the motion is otherwise DENIED and discovery may proceed
in this action as to 1inMM and all third-parties. This includes, but is not limited to,
discovery concerning the investors in 1inMM, Netflix, and HBO.
V. CONCLUSION
In accordance with the foregoing, the Court GRANTS in part and DENIES in
part Horwitz’s motion as follows:
1. The motion is GRANTED with respect to Horowitz only, pending resolution
of the Crminal Action. Horwitz is DIRECTED to file status reports
regarding the status of the Criminal Action every 120 days from the date of

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL ‘0’
Case No. 2:21-cv-02927-CAS-GJSx Date July 12, 2021
Title SECURITIES AND EXCHANGE COMMISSION v. ZACHARY J.
HORWITZ; ET AL

the Court’s entry of a stay, or upon a resolution of the Criminal Action,
whichever first occurs.
2. The motion is DENIED with respect to 1inMM, and the parties may proceed
with discovery.
3. The parties may proceed with third-party discovery, including, but not
limited to, discovery related to investors in 1inMM, Netflix, and HBO.
4. The Court’s asset freeze orders remain in full force and effect.
IT IS SO ORDERED.
00 06
Initials of Preparer CMJ

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10041359. Public record. Not legal advice.