# Securities and Exchange Commission v. Sharp

> District Court, D. Massachusetts · June 17, 2024

URL: https://www.frixlaw.com/law-library/cases/10202059

## Case

- **Court:** District Court, D. Massachusetts
- **Decided:** June 17, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10202059

## How later opinions describe it (automated extraction)

- affirming a lower court “holding that in a disciplinary proceeding before the [SEC] violations of the antifraud provisions of the securities laws may be established by a preponderance of the evidence”
- holding that the defendants’ argument that the district court “abused its discretion in fixing the amount of disgorgement because the SEC did not offer bank records showing that defendants actually received the amounts memorialized on the subscription agreements” “lacks merit”

## Opinion text

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
___________________________________
)
SECURITIES AND EXCHANGE )
COMMISSION, )
)
Plaintiff, )
)
v. ) CIVIL ACTION
) NO. 21-11276-WGY
FREDERICK L. SHARP, )
ZHIYING YVONNE GASARCH, )
COURTNEY KELLN, )
MIKE K. VELDHUIS, )
PAUL SEXTON, )
JACKSON T. FRIESEN, )
WILLIAM T. KAITZ, )
AVTAR S. DHILLON, and )
GRAHAM R. TAYLOR, )
)
Defendants. )
)
___________________________________)

YOUNG, D.J. June 17, 2024

MEMORANDUM & ORDER
I. INTRODUCTION
Following a ten day civil securities fraud jury trial
resulting in a verdict for the plaintiff Securities and Exchange
Commission (“SEC”), the SEC now moves for remedies against the
defendants Zhiying Yvonne Gasarch (“Gasarch”), Courtney Kelln
(“Kelln”), Mike K. Veldhuis (“Veldhuis”), Paul Sexton
(“Sexton”), and Jackson T. Friesen (“Friesen”) (collectively,
the “Defendants”). See generally Pl.’s Mot. for Remedies
against Defs. (“Mot. Remedies”), ECF No. 425. The Defendants
oppose the SEC’s proposed remedies. See Def. Sexton’s Opp’n
Mot. Remedies (“Sexton’s Opp’n”), ECF No. 454; Defs. Kelln &
Veldhuis’ Opp’n Mot. Remedies (“Kelln & Veldhuis’ Opp’n), ECF

No. 455; Def. Gasarch’s Opp’n Mot. Remedies (“Gasarch’s Opp’n),
ECF No. 464; Def. Friesen’s Opp’n Mot. Remedies (“Friesen’s
Opp’n”), ECF No. 471.
The SEC filed replies to all of the above-mentioned
opposition memoranda. See Pl.’s Reply Mem. Supp. Mot. Remedies
against Defs. Sexton, Veldhuis, and Kelln (“Pl.’s Reply to
Sexton, Veldhuis & Kelln”), ECF No. 470; Pl.’s Reply Mem. Supp.
Mot. Remedies against Def. Gasarch (“Pl.’s Reply to Gasarch”),
ECF No. 474; Pl.’s Reply Mem. Supp. Mot. Remedies against Def.
Friesen (“Pl.’s Reply to Friesen”), ECF No. 480. Sexton and
Gasarch filed sur-replies to the SEC’s replies. See Sexton’s
Sur-Reply Mot. Remedies (“Sexton’s Sur-Reply”), ECF No. 473;

Gasarch’s Sur-Reply Mot. Remedies (“Gasarch’s Sur-Reply”), ECF
No. 481.
On September 27, 2023, a unanimous jury found Friesen and
Gasarch to have committed various securities violations alleged
by the SEC. See Jury Verdict, ECF No. 402.1 As to the other
defendants presently before the Court, Kelln, Veldhuis, and

1 These were various violations of both the Securities Act of
1933 (“Securities Act”) and the Securities Exchange Act of 1934
(“Exchange Act”).
Sexton, the Court entered partial judgments against them before
the trial. See J. as to Kelln (“Kelln J.”), ECF No. 317; J. as
to Veldhuis (“Veldhuis J.”), ECF No. 325; J. as to Sexton

(“Sexton J.”), ECF No. 378. Pursuant to those judgments, the
Court ordered Kelln, Veldhuis, and Sexton, and they each agreed,
not to “contest liability under the claims filed by the [SEC]”
at the remedies stage. Kelln J. 5; Veldhuis J. 5; Sexton J. 1-
2. In the same partial judgments, however, the Court ordered
that these three defendants, while accepting liability, would
“be permitted to challenge the remedies and sanctions sought by
the [SEC],” Kelln J. 5; Veldhuis J. 5, and that they would “be
permitted to oppose the [SEC’s] requested relief, including any
calculations thereof.” Sexton J. 2.
The remedies now sought by the SEC are three-fold. See
generally Pl.’s Mem. Supp. Mot. Remedies (“Mem. Supp.”), ECF No.

426. First, the SEC requests injunctive relief against Sexton,
Friesen, and Gasarch, asking this Court to (1) permanently
restrain and enjoin them from violating securities laws; (2)
issue specific conduct-based injunctions permanently barring
them from professionally –- but not personally -- participating
in a national securities exchange; and (3) issue penny stock
bars permanently barring them from trading in penny stocks.2 See
id. at 2-11.
Second, the SEC requests this Court impose civil penalties

against the Defendants in the following amounts: (1) $1,562,603
against Sexton; (2) $1,562,603 against Friesen; (3) $1,562,603
against Veldhuis; (4) $904,078 against Kelln; and (5) $558,072
against Gasarch. Id. at 1.
Third, the SEC seeks disgorgement awards and prejudgment
interest as to the Defendants in the following amounts: (1)
$17,367,474 in disgorgement and $5,872,145 in prejudgment
interest against Sexton; (2) $11,846,176 in disgorgement and
$4,057,737 in prejudgment interest against Friesen; (3)
$13,289,897 in disgorgement and $4,314,031 in prejudgment
interest against Veldhuis; (4) $1,582,785 in disgorgement and
$460,687 in prejudgment interest against Kelln; and (5)

$2,522,367 in disgorgement and $646,366 in prejudgment interest
against Gasarch. Id.
Having reviewed the parties’ briefs and having held a
hearing on the question of remedies, see ECF No. 484, this Court
(1) granted the SEC’s request for injunctive relief against

2 Penny stock “generally refers to a security issued by a
very small company that trades at less than $5 per share.” Am.
Compl. ¶ 40, ECF No. 230; see also Securities and Exchange
Commission v. Sharp, 626 F. Supp. 3d 345, 366 n.3 (D. Mass.
2022).
Sexton, Friesen, and Gasarch in its entirety; (2) imposed civil
penalties against Sexton, Friesen, Veldhuis, and Kelln in the
amounts requested by the SEC, and as to Gasarch, having

considered a downward variance from the SEC’s requested amount
of $558,072 equitable and appropriate, imposed a civil penalty
of $269,651; and (3) took the issue of disgorgement and
prejudgment interest as to all of the Defendants under
advisement. See id.
With this memorandum and order, the Court now provides its
written disposition of the SEC’s motion for remedies. In
addition to providing its explanation for imposing the above-
mentioned injunctions and civil penalties against the
Defendants, for the reasons elucidated below, the Court now
GRANTS the SEC’s motion for disgorgement in its entirety, but
modifying it to hold the Defendants jointly and severally liable

in the following manner, and DENIES the SEC’s motion for
prejudgment interest.
II. FACTUAL BACKGROUND
At its core, the present enforcement action centers around
an elaborate securities fraud scheme involving a sequence of
separate pump and dump endeavors. Each proceeded in three
steps. Certain defendants (1) accumulated penny stocks in
national markets in micro-cap companies; (2) promoted the penny
stocks in these companies by using paid promotions to garner the
attention and interest of unwitting investors; and (3) sold
their stocks to investors, not in their own names but through
so-called shell or nominee companies they formed in order to

skirt securities laws that otherwise prohibit the unregulated
sale of restricted and control securities. See Sharp, 626 F.
Supp. 3d at 366 (detailing the scheme based on allegations in
SEC’s complaint). In essence, the Defendants “engaged in a
decade-long scheme to profit at the expense of unwitting
investors by concealing their, or their clients’, ownership and
control of many microcap companies.” Mem. Supp. 1.
Each of the Defendants played a different role in the
interconnected pump-and-dump schemes. Sexton, Veldhuis, and
Friesen acted as a group that teamed with Sharp to “sell stock
surreptitiously in the public market.” Am. Compl. ¶ 7. They
acquired, held, and then disposed of shares. Id. ¶ 153. Kelln,

Sharp’s employee, helped conceal common control of shares by
distributing them accordingly to Sharp’s directions. Id. ¶¶ 52-
53. “Much of Kelln’s work was grouping stocks for transmission
to transfer agents such that the totals appeared five percent to
avoid disclosure and registration requirements.” Sharp, 626 F.
Supp. 3d at 366 (footnote omitted). Gasarch, another Sharp
employee, “organized wire transfers of the proceeds from the
illegal stock sales while concealing the beneficiaries,
maintained records in the encrypted accounting system, and
routinely created false invoices to support the payments.” Id.
at 366-67; see also Am. Compl. ¶¶ 57-59.
Importantly, Kelln, Veldhuis, and Sexton have admitted

their liability, and this Court has entered partial judgments
against them in which they were instructed not to contest
liability but were given the opportunity to challenge any and
all remedies the SEC now seeks against them. See Kelln J. 5;
Veldhuis J. 5; Sexton J. 1-2. As for the remaining defendants,
Friesen and Gasarch, a ten-day trial ensued in which a unanimous
jury found both liable for the various securities laws
violations alleged in the SEC’s complaint. See Jury Verdict;
see also generally Tr. Jury Trial Day Ten 7-9, ECF No. 445.
III. ANALYSIS
The SEC seeks three remedies: (1) injunctive relief against
Sexton, Friesen, and Gasarch; (2) civil penalties against the

Defendants, in varying amounts; and (3) disgorgement and
prejudgment interest against the Defendants, in varying amounts.
See generally Mem. Supp. 1.
A. Injunctive Relief Against Sexton, Friesen, and
Gasarch

Section 21(d) of the Exchange Act permits the SEC to seek
temporary or permanent injunctions against persons “engaged or
[] about to engage” in Exchange Act violations. 15 U.S.C. §
78(u)(d)(1); see also Securities and Exchange Commission v.
Sargent, 329 F.3d 34, 39 (1st Cir. 2003). “Such an injunction
is appropriate where there is, ‘at a minimum, proof that a
person is engaged in or is about to engage in a substantive

violation of either one of the Acts or of the regulations
promulgated thereunder.’” Sargent, 329 F.3d at 39 (quoting
Aaron v. SEC, 446 U.S. 680, 700-01 (1980)). “The legal standard
for issuing an injunction is ‘reasonable likelihood of
recidivism, not an imminent threat of it.’” Securities and
Exchange Commission v. Lemelson, 596 F. Supp. 3d 227, 231 (D.
Mass. 2022) (Saris, J.) (quoting Sargent, 329 F.3d at 39). In
assessing the likelihood of recidivism, courts look at several,
non-dispositive factors, including “the nature of the violation,
including its egregiousness and its isolated or repeated
nature”; “whether the defendants will, owing to their
occupation, be in a position to violate again”; and “whether the

defendants have recognized the wrongfulness of their conduct.”
Id. In analyzing whether injunctive relief is appropriate,
courts consider the relevant factors to be established based on
“a preponderance of the evidence.” Steadman v. SEC, 450 U.S.
91, 95 (1981) (affirming a lower court “holding that in a
disciplinary proceeding before the [SEC] violations of the
antifraud provisions of the securities laws may be established
by a preponderance of the evidence”).
Here, the SEC seeks three types of injunctive relief: (1)
permanent injunctions; (2) specific, conduct-based injunctions;
and (3) penny stock bars. See Mem. Supp. 2-11.
1. Permanent Injunctions

The SEC seeks permanent injunctions against Sexton,
Friesen, and Gasarch that would prevent them from violating
securities laws. Id. at 2.
Specifically, the SEC makes three arguments. First, it
argues that the three Defendants’ conduct was “egregious,
recurrent, and sustained.” Id. at 3. The SEC notes in support
of this contention that the scheme in which these three
Defendants were involved “resulted[ed] in the fraudulent sale of
more than $144 million worth of penny stocks,” id.; that Gasarch
enabled the scheme by, among other things, concealing beneficial
ownership and fabricating invoices and other documents, id. at

3-4; and that Sexton and Friesen exercised control over the
stock of 14 issuers but concealed their control in their pump-
and-dump schemes, id. at 4. Second, the SEC argues that these
three Defendants “have the opportunity to violate again.” Id.
at 5. The SEC notes that they engaged in illegal conduct
spanning a decade; that they are located in “metropolitan
Vancouver where they apparently have not found gainful
employment”; and that they have refused to testify before the
SEC to answer questions about their activity. Id. at 5-6.
Third, the SEC argues that these three Defendants “have not yet
recognized the wrongful nature of their conduct.” Id. at 6.
The SEC also notes that this Court has issued similar

injunctions against certain other defendants in this case. Id.
at 3; see, e.g., Final J. as to Sharp 2 (“Sharp J.”), ECF No.
211 (ordering that Sharp “is permanently restrained and
enjoined” from violating securities laws); Kelln J. 2-4 (same
language); Veldhuis J. 2-4 (same language).
The three Defendants oppose. Sexton argues that the SEC
“has not established a reasonable likelihood of recurrence,”
Sexton’s Opp’n 16, emphasizing that the last purported profit
attributed to him is dated 2018, and that “nearly 93 percent of
the alleged profits are from in or before 2015,” id. Friesen
contends that the SEC has failed to provide the Court with
“evidence of any conduct in the last six years” to establish a

likelihood of recurrence. Friesen’s Opp’n 11 (emphasis in
original). Gasarch also opposes a permanent injunction, arguing
that she was never involved in the actual issuance, purchase,
offer or sale of security, which the permanent injunction seeks
to enjoin. Gasarch’s Opp’n 15. She also notes that the SEC has
failed to establish the likelihood of recurrence. Id. at 16.
While “an injunction is a drastic remedy,” Aaron, 446 U.S.
at 703 (Burger, C.J., concurring), for the following reasons,
this Court concludes that a permanent injunction against Sexton,
Friesen, and Gasarch is an appropriate remedy.
First, the Court finds that these three Defendants’

securities laws violations were egregious and of a repeated
nature. As the First Circuit has observed, a securities law
“violation [may be considered] not an egregious one,
particularly where [the defendant] neither traded on the
information himself nor derived any direct personal profit.”
Sargent, 329 F.3d at 39. Conversely, here, each of the three
Defendants directly and personally profited from the scheme.
Pursuant to the partial judgment as to Sexton, he “is liable
under Counts I-IV of the Amended Complaint[.]” Sexton J. 1.
Those counts attribute liability to Sexton for engaging in fraud
in connection with the offer and sale of unregistered
securities, Am. Compl. ¶¶ 250-63, which has resulted in “the

fraudulent sale of more than $144 million worth of penny
stocks,” Mem. Supp. 3, from which Sexton personally profited.
See, e.g., Decl. of Ryan Murphy (“Decl. of Ryan Murphy I”) ¶¶
48-49, ECF No. 273; Mem. Supp. 4. Friesen and Gasarch have
similarly profited from the schemes. See Decl. of Ryan Murphy I
¶¶ 48-49 (Friesen); Mem. Supp. 3-4 (Gasarch).
In addition to the egregiousness of the deceit undergirding
it, the pump-and-dump schemes, far from being isolated or short
in duration, lasted for a decade. See Mem. Supp. 1. Courts in
this district and others have not hesitated to impose permanent
injunctive relief against securities law violations much shorter
in duration. See, e.g., Securities and Exchange Commission v.

Chan, 465 F. Supp. 3d 18, 38 (D. Mass. 2020) (Burroughs, J.)
(finding an “egregious” violation where “an [] insider trading
scheme [] lasted for nearly two years and involved multiple
trades”); Securities and Exchange Commission v. Wall, 2020 U.S.
Dist. LEXIS 56152, at *25 (D. Me. Mar. 31, 2020) (ordering
permanent injunction where “the defendants’ violations were part
of a pattern lasting more than four years”).
Additionally, in view of the fact that the pump-and-dump
scheme involved fourteen separate issuers, thus rendering these
Defendants’ securities violations repetitive and schematic in
nature, the Court does not hesitate to conclude that said
violations were egregious. Cf. Securities and Exchange

Commission v. Cody, 2019 U.S. Dist. LEXIS 210452, at *11 (D.
Mass. Dec. 5, 2019) (Saylor, J.) (finding egregious conduct in
view of “the fact that [defendant] made multiple representations
over a prolonged period of time and created falsified documents
to hide his deceptions”); Securities and Exchange Commission v.
Weed, 315 F. Supp. 3d 667, 676 (D. Mass. 2018) (Gorton, J.)
(finding egregiousness where “[t]he violations [] were repeated
in nature”); Securities and Exchange Commission v. Spencer
Pharm. Inc., 2015 U.S. Dist. LEXIS 132909, at *17 (D. Mass.
Sept. 30, 2015) (Talwani, J.) (finding that “the scope and
complexity of the scheme supports the need for a permanent
injunction”).

Second, the Court finds that these three Defendants have
the opportunity to violate securities laws again. As the First
Circuit has clarified, under this prong of the analysis, courts
must find a reasonable likelihood –- not mere possibility -- of
recidivism. See Securities and Exchange Commission v. Lemelson,
57 F.4th 17, 31 (1st Cir. 2023). Here, the Court so finds.
Although Sexton points out that his “proceeds have been frozen,”
Sexton’s Opp’n 17, the SEC notes that “all three defendants
recently sought a release of frozen funds,” and none presented
the Court with evidence that there are now gainfully employed
outside of the microcap industry in which their fraudulent
scheme operated. See Mem. Supp. 5. Remaining in the same

sector or industry in which one’s offensive conduct took place
is a factor that courts have weighed in favor of finding a
likelihood of recidivism. Cf. Lemelson, 57 F.4th at 31
(“Lemelson's continued position as a hedge fund manager and
investment adviser would readily allow him to benefit from
future material misstatements concerning investments.”).
Further, Sexton’s argument that the “so-called Sharp network is
no more,” Sexton’s Opp’n 16-17, is unavailing. The “Sharp
network” is no more not because the Defendants ceased to operate
it on their own accord, which could have been an indication to
the Court that the Defendants do not intend to engage in future
violations. That counterfactual is of no moment: the Sharp

network is no more simply because of law enforcement and the
present action brought by the SEC, not because the Defendants do
not intend to engage in future violations.
Moreover, that considerable time has elapsed since these
three Defendants last violated securities laws, see, e.g.,
Sexton’s Opp’n 16; Friesen’s Opp’n 11, does not persuade the
Court that they will not offend in the future. Courts have
found a likelihood of recurrence where Defendants were seemingly
similarly, if not more, unlikely to offend again. See, e.g.,
Cody, 2019 U.S. Dist. LEXIS 210452, at *10-11 (finding
likelihood of recurrence “[a]lthough it is true that he is
currently imprisoned, and thus not immediately in a position to

commit further violations”); Securities and Exchange Commission
v. Present, 2018 U.S. Dist. LEXIS 45056, at *5 n.1 (D. Mass.
Mar. 20, 2018) (Sorokin, J.) (finding likelihood of recidivism
in 2018 even though defendant “has not worked in the securities
industry since 2014”).3

3 The Court also observes that the duration of the schemes,
spanning nearly a decade, in addition to weighing in favor of
issuing a permanent injunction in and of itself, persuades the
Court, in combination with the reasons provided under this
paragraph, that the three defendants have significant experience
in the securities industry, rendering a future violation more
Third, the Court finds that these three Defendants have not
acknowledged their wrongdoing. Sexton still contends that the
SEC, at most, can establish discrete securities laws violations

but not that there was a fraudulent scheme where “all
transactions involving 14 issuers were fraudulent,” Sexton’s
Opp’n 8, thereby attempting to minimize his offensive conduct.
Sexton also contends that “[t]here is nothing unlawful about
stock promotion,” id. at 9, denying the impropriety and
illegality of his conduct. Sexton further avers that the SEC
has not been able to show that there “are any victims” of the
scheme, id. at 10, a contention reiterated by Friesen, see
Friesen’s Opp’n 8, that, once again, endeavors to deny or at
least minimize the large-scale harm perpetrated by their
schemes. In similar fashion, Gasarch, despite a unanimous jury
verdict finding her liable of independent and aiding-and-

abetting violations of securities laws, see Jury Verdict,
continues to argue that her involvement in the scheme was
legitimate. See, e.g., Gasarch’s Opp’n 10 (“Clearly, given the
length of time and the number of accounts and activities, Mrs.
Gasarch was compensated for supporting Mr. Sharp in his

likely than not. Cf. Securities and Exchange Commission v.
Baccam, 2017 U.S. Dist. LEXIS 88450, at *26 (C.D. Cal. June 8,
2017) (granting SEC’s request for a permanent injunction in view
of the fact, among others, that “[defendant] has more than a
decade of experience in the securities industry”).
legitimate business activities.”); see also id. at 16
(contending that her conduct was not “grave” and her involvement
in the scheme not “prominent”). The Court accordingly finds

that these three Defendants have failed to show proper remorse
and acknowledge the wrongful nature of their conduct.
Finally, Gasarch unpersuasively argues that a permanent
injunction restraining and enjoining her from the issuance,
purchase, offer or sale of securities is inappropriate because
she did not independently and directly engage in any violations
involving such actions but, at most, aided and abetted others
who directly engaged in those actions. See Gasarch’s Opp’n 15.
Other sessions of this Court have not hesitated to permanently
restrain and enjoin defendants from engaging in violations whose
perpetration they aided and abetted. See, e.g., Spencer Pharm.
Inc., 2015 U.S. Dist. LEXIS 132909, at *15, *18 (issuing

permanent injunction against aider and abettor of securities law
violation).4

4 Accepting Gasarch’s contention that the Court ought not
issue a permanent injunction against her because she merely
aided and abetted others in their fraudulent participation in
the securities market is unmeritorious for two additional
reasons. First, the jury, in addition to finding her to have
aided and abetted others, found Gasarch independently liable of
violating Section 17(a)(3). See Jury Verdict 2. While that
independent violation does not directly pertain to the issuance
of securities, it supports this Court’s finding - - made during
the trial - - that Gasarch was “at the hub” of the scheme. Tr.
Jury Trial Day Eight 41, 164, ECF No. 442. Her role at the hub
of the scheme supports this Court’s finding that she was an
Accordingly, this Court finds that Sexton, Friesen, and
Gasarch engaged in egregious and repeated violations of
securities laws for many years; are in a position to violate

again; and have failed to recognize the wrongfulness of their
conduct. In view of these findings, a permanent injunction
against each of the three is appropriate.5

important part of the scheme even though she may not have been
as culpable as the other defendants. Second and more generally,
permanent injunctions are equitable remedies over which courts
enjoy a great degree of latitude. See, e.g., Securities and
Exchange Commission v. Tropikgadget FZE, 2017 U.S. Dist. LEXIS
25495, at *12 (D. Mass. Feb. 23, 2017) (Burroughs, J.) (“The
Court has broad authority to grant such an injunction.”).
Gasarch’s contention that she ought not be enjoined from
activity she herself did not commit but only aided and abetted
would run afoul of that latitude and also of the relevant
statutory text that grants this Court broad equitable powers:
“In any action or proceeding brought or instituted by the [SEC]
under any provision of the securities laws, the [SEC] may seek,
and any Federal court may grant, any equitable relief that may
be appropriate or necessary for the benefit of investors.” 15
U.S.C. § 78(u)(d)(5) (emphasis added).

5 At least one of the three defendants has averred that
permanent injunctions enjoining future securities laws
violations, so-called “obey-the-law injunctions,” do not make
sense because everyone, regardless of an injunction, is bound to
not violate laws, including the securities laws in question.
See, e.g., Sexton’s Opp’n 17; see also Securities and Exchange
Commission v. Goble, 682 F.3d 934, 949 (11th Cir. 2012) (“As the
name implies, an obey-the-law injunction does little more than
order the defendant to obey the law. We have repeatedly
questioned the enforceability of obey-the-law injunctions not
only in the context of securities cases but other cases as
well.”).
While the First Circuit has struck general and vaguely
worded “obey-the-law” injunctions in other contexts, see Equal
Employment Opportunity Commission v. Aviation Port Servs., LLC,
2020 U.S. Dist. LEXIS 57073, at *34-35 (D. Mass. Apr. 1, 2020)
(Saylor, C.J.) (collecting and analyzing cases), courts in this
2. Specific, Conduct-Based Injunctions
The SEC requests this Court specifically enjoin Sexton,
Friesen, and Gasarch from “participating in the issuance,

purchase, offer, or sale of any security; provided, however,
that such an injunction shall not prevent [defendants] from
purchasing or selling securities listed on a national securities
exchange for [their] own personal account.” See, e.g., Mot.
Remedies, Text of Proposed Order Proposed Final J. as to
Gasarch, ECF No. 425-2. In essence, the requested conduct-based
injunction would prevent the three Defendants from
professionally –- but not personally –- engaging in the national
securities market.
This Court is authorized to issue the requested conduct-
based injunction. See 15 U.S.C. § 78(u)(d)(1); 15 U.S.C. §
78(u)(d)(5). “The Court has wide discretion to impose a

conduct-based injunction in SEC actions.” Securities and
Exchange Commission v. CKB168 Holdings, Ltd., 2022 U.S. Dist.
LEXIS 144893, at *9 (E.D.N.Y. Aug. 12, 2022). The analysis for
the SEC’s request for permanent injunctions, see supra Section

Circuit as well as other sessions of this Court have issued
injunctions in the securities context that are similar to the
injunctions requested in the present case. See, e.g., Chan, 465
F. Supp. 3d at 38; Present, 2018 U.S. Dist. LEXIS 45056, at *2-
3.
III.A.1 (“Permanent Injunctions”), is equally applicable here.
See CKB168 Holdings, Ltd., 2022 U.S. Dist. LEXIS 144893, at *9
(applying its permanent injunction analysis in its entirety –-

“[f]or the same reasons laid out [above]” –- to its conduct-
based injunction analysis).
For the same reasons elucidated above, the Court issues the
specific, conduct-based injunctions requested by the SEC. The
Court additionally notes three points in support of its
conclusion. First, as the SEC correctly brings to this Court’s
attention, “[t]his Court has issued this same requested
injunction against Sharp, Kelln, and Veldhuis already.” Mem.
Supp. 7. Sexton, Friesen, and Gasarch have not raised any
convincing argument as to why their cases ought be treated any
differently. Second, other courts, including those in this
Circuit, have issued similar specific, conduct-based

injunctions. See, e.g., Wall, 2020 U.S. Dist. LEXIS 56152, at
*26-27. Third, the injunction still allows the three Defendants
to “purchas[e] or sell[] securities listed on a national
securities exchange for [their] own personal account.” See,
e.g., Mot. Remedies, Text of Proposed Order Proposed Final J. as
to Sexton 5, ECF No. 425-3. As such, this conduct-based
injunction “does not deprive [the three defendants] of [their]
living or the opportunity to purchase and sell securities for
[their] own personal account.” Wall, 2020 U.S. Dist. LEXIS
56152, at *27.
3. Penny Stock Bars

The SEC requests that Sexton, Friesen, and Gasarch be
barred from participating in future offerings of penny stocks.
See Mem. Supp. 8-11; see also Mot. Remedies, Text of Proposed
Order Proposed Final J. as to Sexton 5 (requesting the Court
decree the three Defendants “permanently barred from
participating in an offering of penny stock, including engaging
in activities with a broker, dealer, or issuer for purposes of
issuing, trading, or inducing or attempting to induce the
purchase or sale of any penny stock”).
“The standard for imposing a penny stock bar essentially
‘mirrors that for imposing an officer-or-director bar.’” Weed,
315 F. Supp. 3d at 677 (quoting Securities and Exchange

Commission v. Universal Exp., Inc., 475 F. Supp. 2d 412, 429
(S.D.N.Y. 2007)). The criteria to determine whether an officer-
or-director bar is appropriate, in turn, are: “(1) the
egregiousness of the underlying securities law violation, (2)
whether defendant was a repeat offender, (3) defendant[’]s[]
role in the fraud[,] (4) defendant’s degree of scienter, (5)
defendant’s economic stake in the fraud and (6) the likelihood
that misconduct will recur.” Id. (citing Securities and
Exchange Commission v. Patel, 61 F.3d 137, 142 (2d Cir. 1995)).
These criteria, also known as the Patel factors, are “neither
mandatory nor exclusive.” Securities and Exchange Commission v.
Bankosky, 716 F.3d 45, 46 (2d Cir. 2013); see also Securities

and Exchange Commission v. Johnston, 368 F. Supp. 3d 247, 251
(D. Mass. Mar. 21, 2019) (Gorton, J.) (“While the Patel factors
are instructive . . . they are not exhaustive and it is not
necessary to apply all of the factors in every case.”).
Here, the analysis in the foregoing sections has already
established that Sexton, Friesen, and Gasarch meet many of the
Patel factors,6 which obviates the need for repetition.
Accordingly, the Court grants the SEC’s request for penny stock
bars against each of the three Defendants.
The Court finds it appropriate to dispose of Gasarch’s
argument concerning her scienter –- or rather, in her
formulation, the lack thereof –- here, as a “defendant’s degree

of scienter” is among the relevant Patel factors quoted above.
Weed, 315 F. Supp. 3d at 677.
In her opposition, Gasarch correctly points to a
misquotation by the SEC. See Gasarch’s Opp’n 1. Indeed, in its
motion for remedies, the SEC submitted that the jury found

6 For example, Sexton, Friesen, and Gasarch’s conduct was
egregious, see supra pp. 11-12; repeated over the course of many
years, see supra pp. 12-13; and resulted in economic benefit to
the three defendants, see supra pp. 11-12. Further, there is a
likelihood that their misconduct, in the absence of an
appropriate injunction, will recur. See supra pp. 13-14.
“Gasarch liable for violating Section 17(a)(3) of the Securities
Act and aiding and abetting violations of Sections 17(a)(1) and
(3) of the Securities Act and Section 10(b) and Rule 10b-5(a)

and (c) of the Exchange Act. . . .” Mot. Remedies (emphasis
added). Yet, as Gasarch points out and as the jury verdict form
clearly indicates, the jury found Gasarch liable for
independently violating Section 17(a)(3) of the Securities Act
and aiding and abetting violations of Section 17(a)(1) or
Section 17(a)(3) of the Securities Act or Section 10(b) and Rule
10b-5(a) and (c) of the Exchange Act. See Jury Verdict 2; see
also Gasarch’s Opp’n 1. While the jury may have found multiple
aiding and abetting violations, the use of the disjunctive “or”
indeed makes it also entirely possible, as Gasarch contends,
that the jury may have found her liable for her independent
violation of Section 17(a)(3) of the Securities Act and for

aiding and abetting violations of, again, Section 17(a)(3). See
Gasarch’s Opp’n 1.
Since a Section 17(a)(3) violation does not require
scienter, as this Court previously held, see Sharp, 626 F. Supp.
3d at 382, Gasarch argues that it is possible that she is liable
for her independent non-scienter-based conduct violating Section
17(a)(3) and for aiding and abetting others’ non-scienter-based
conduct violating the same. See Gasarch’s Opp’n 2. Gasarch
goes on to argue that, assuming those are her only two
securities law violations, “an aider and abettor may be liable
only to the same extent as the person to whom such assistance is
provided.” Gasarch’s Sur-Reply 5 (quotation omitted). Her

contention seems to be that her aiding and abetting violation
may be without scienter since the conduct she aided and abetted
itself is non-scienter-based if it is just the aiding and
abetting of others’ non-scienter-based Section 17(a)(3)
violations.
This Court rejects this contention for two reasons and
instead finds that Gasarch acted with a degree of scienter in
aiding and abetting securities violations by other defendants.
First, even assuming, arguendo, that they jury found Gasarch
liable only for her independent and non-scienter-based violation
of Section 17(a)(3) and for aiding and abetting other
defendants’ violation of the same, this Court is still permitted

to make findings of fact as to the appropriate remedy that do
not conflict with the jury’s findings as to liability. Such
findings as to remedy may –- and here they do –- include the
finding that Gasarch acted with scienter. Based on ample
evidence presented at trial, and as the Court made clear during
the hearing on remedies, the Court finds that there is
sufficient evidence to establish that Gasarch acted
intentionally. Second, and relatedly, the Court rejects
Gasarch’s contention as erroneous that an aiding and abetting
violation ought have, at most, the same degree of scienter as
the underlying violation. That is because here, the very act of
aiding and abetting a securities violation, regardless of

whether the aided conduct itself requires scienter for its
commission, requires its own culpable mental state. See, e.g.,
Malouf v. SEC, 933 F.3d 1248, 1268 (10th Cir. 2019) (holding
that “scienter is an essential element of aiding and abetting a
violation of the securities law”); Securities and Exchange
Commission v. Blackburn, 2015 U.S. Dist. LEXIS 120747, at *21
(E.D. La. Sept. 10, 2015) (“[A] prima facie claim for aiding and
abetting a violation of securities laws involves an underlying
requirement of scienter.”). In the case at bar, this Court
instructed the jury during Gasarch’s trial that an aiding and
abetting violation requires knowing or reckless conduct. See
Tr. Jury Trial Day Nine 34:24-25, 35:1, ECF No. 444 (instructing

the jury on the aiding and abetting allegation against Gasarch,
explaining that it must find, among other things, that “Gasarch
knowingly or recklessly provided substantial assistance to the
violation”). Thus, regardless of the conduct Gasarch aided and
abetted, that she aided and abetted others’ conduct in violation
of the securities laws suffices for this Court to find that she
acted with scienter.7

7 In any event, in view of the fact that scienter is but one
Accordingly, a permanent penny stock bar will issue against
Sexton, Friesen, and Gasarch.
B. Civil Penalties Against All of the Defendants
1. Legal Standard

Section 20(d)(2) of the Securities Act and Section 21(d)(3)
of the Exchange Act authorize the SEC to seek, and this Court to
impose, civil penalties to be determined “in light of the facts
and circumstances.” See Lemelson, 596 F. Supp. 3d at 233. In
assessing civil penalties, courts may choose from three tiers,
Tier I, Tier II, and Tier III, in increasing order of severity.
Tier II requires “fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement.” 15 U.S.C. §
77(t)(d)(2)(B). Tier III requires all of the elements of Tier
II and the additional requirement that “such violation directly
or indirectly result[] in substantial losses or create[] a

significant risk of substantial losses to other persons.” 15
U.S.C. § 77(t)(d)(2)(C). Tier I is available for all other
violations. See also Mem. Supp. 12 (outlining the tier system).
“The tier determines the maximum penalty, with the actual amount
of the penalty left up to the discretion of the district court.”

of the many Patel factors discussed above, the egregiousness of
Gasarch’s conduct, her economic stake in the fraud, and the
likelihood that her misconduct will recur, still weigh in favor
of issuing a penny stock bar against her.
Securities and Exchange Commission v. Kern, 425 F.3d 143, 153
(2d Cir. 2005) (citing 15 U.S.C. § 77(t)(d)).
In fashioning an appropriate civil penalty, courts look to

a variety of factors, including: “the egregiousness of the
violation, the defendant’s willingness or failure to admit
wrongdoing, the isolated or repeated nature of the violations,
the degree of scienter involved, the defendant’s cooperation
with authorities or lack thereof, and the defendant’s current
financial condition.” Securities and Exchange Commission v.
Esposito, No. 16-cv-10960-ADB, 2018 U.S. Dist. LEXIS 72728, at
*9 (D. Mass. Apr. 30, 2018) (Burroughs, J.).
Importantly, civil penalty claims may be time-barred. As
this Court previously held in disposing of a prior motion to
dismiss in this case, see Sharp, 626 F. Supp. 3d at 385-86, the
applicable statute subjects civil penalty claims like those

requested here to a five-year statute of limitations. Thus,
this Court may impose civil penalties only in relation to
securities law violations that may have occurred between August
5, 2016, and August 5, 2021, id. at 382. By contrast, as this
Court previously stated, it cannot impose a monetary penalty in
relation to violations prior to August 2016. See Tr. Motion and
Charge Conference 55:15-18, ECF No. 443 (“So let me be clear.
If we get to remedies, and I’m coming to think about remedies,
and I think that violation was pre-August 2016, then I cannot
impose a monetary penalty.”); see also Sexton’s Opp’n 14 (same);
Gasarch’s Opp’n 13 (same).
2. Parties’ Arguments

With the foregoing legal standard in mind, the SEC requests
this Court condemn the Defendants’ conduct as repeated and
egregious violations “evinc[ing] a high degree of scienter.”
Mem. Supp. 13. The SEC also argues that none of the Defendants
have acknowledged the wrongfulness of their conduct and that
they are in possession of “substantial assets to satisfy a
judgment.” Id. at 14; see also id. at 3-5 (describing how the
Defendants’ conduct caused substantial loss to investors).
As for each of Sexton, Veldhuis, and Friesen, the SEC
requests the Court impose “individual civil penalties in the
amount of $1,562,603.” Id. at 14. The SEC’s proposed
methodology is as follows: multiply a one-time Tier III penalty

amount of $223,229 by seven since each of these three Defendants
traded in seven issuers’ stock –- out of the 14 -- during the
five-year statute of limitations period between August 2016 and
August 2021, that is, $223,229 x 7 = $1,562,603. See id.
Sexton opposes, arguing that the SEC’s position that he was
involved in issuing stock from seven companies between August
2016 and August 2021 is based on “a summary witness[’]
alleg[ations.]” Sexton’s Opp’n 14. Sexton also argues that the
evidence, at most, demonstrates that he profited from three
issuers, not seven, and even then, that the passive receipt of
pay checks is not, in and of itself, sufficient to restart the
five-year clock for what were payments relating to conduct

predating August 2016. See id. at 15. Finally, Sexton argues
that in alleging that he has sufficient funds to pay a civil
penalty -- $13,808,338 in frozen assets according to the SEC,
see Mem. Supp. 14 –- the SEC has failed to take into account the
fact that it is also asking this Court to impose disgorgement
and prejudgment interest against him in the amount of
$17,367,474. Sexton’s Opp’n 15. Veldhuis concurs with Sexton’s
objections. See Kelln & Veldhuis’ Opp’n 2. Friesen similarly
argues that the evidence proffered by the SEC shows that he
“ceased his involvement with the other defendants in or about
2015,” thus before the applicable five-year window beginning in
August 2016. Friesen’s Opp’n 10.

As for Kelln and Gasarch, the SEC requests this Court
impose civil penalties in the amount of $904,078 and $558,072,
respectively. Mem. Supp. 15. For Kelln, the SEC’s proposed
methodology is as follows: the sum of (1) one Tier III penalty
for violating Section 17(a); (2) one Tier III penalty for
violating Section 10(b); (3) one Tier III penalty for aiding and
abetting violations of the Securities Act by the Sharp network
clients; (4) one Tier III penalty for aiding and abetting
violations of the Exchange Act by the Sharp network clients; and
(5) one Tier I penalty for her primary violation of Section 5 of
the Securities Act. See id. In general, Kelln concurs with
Sexton’s objections to the civil penalties sought by the SEC.

See Kelln & Veldhuis’ Opp’n 2.
For Gasarch, the SEC’s proposed methodology is as follows:
the sum of (1) one Tier III penalty for aiding and abetting
violations of the Securities Act by the Sharp network clients;
(2) one Tier III penalty for aiding and abetting violations of
the Exchange Act by the Sharp network clients; and (3) one Tier
II penalty for her primary violation of Section 17(a)(3) of the
Securities Act. Mem. Supp. 15. Gasarch opposes, arguing that
the SEC has failed to proffer evidence that convincingly imputes
any post-August 2016 liability to Gasarch. See Gasarch’s Opp’n
13. She further objects to the amount as excessive, contending
that the jury finding regarding her aiding and abetting “could

have been based on one underlying violation,” not two or three,
id. at 14; that her distribution of proceeds happened after the
purported fraud, id.; and that she does not have the requisite
financial condition to pay the requested sum, id. at 15.
3. Analysis
The Court agrees with the SEC’s proposed methodology for
calculating civil penalties against Sexton, Veldhuis, and
Friesen, determining that they each ought be liable for seven
Tier III violations, as their fraudulent schemes concerned seven
out of the 14 issuers during the applicable five-year period.
Another session of this Court recently adopted a similar
methodology where a civil penalty was imposed against each of

the so-called entity defendants, that is, corporations who
engaged in penny stock fraud. See Securities and Exchange
Commission v. Knox, 2022 U.S. Dist. LEXIS 99321, *9-10 (D. Mass.
June 3, 2022) (Stearns, J.). Similarly, this Court finds it
appropriate to impose a civil penalty against each of Sexton,
Veldhuis, and Friesen per the number of entities they utilized
to defraud unwitting investors during the five years preceding
August 2021. The SEC asserts, and this Court agrees, that that
number is seven.
Further, that the SEC is not seeking civil penalties in
relation to stock sold through all 14 of the issuers is
congruent with this Court’s statement during trial that if it is

persuaded that a violation “was pre-August 2016, then [it]
cannot impose a monetary penalty.” Tr. Motion and Charge
Conference 55:17-18.
Indeed, evidence offered by the SEC supports its contention
that seven out of the 14 issuers were involved in the fraudulent
scheme between August 2016 and August 2021. An affidavit by
Ryan Murphy, an enforcement accountant at the SEC, submits to
this Court “[his] determin[ation] that during that time period,
Veldhuis, Sexton and Friesen traded the securities of seven of
the Fourteen Issuers: Stevia First/Vitality, Arch Therapeutics,
Liberty One Lithium, NewGen Biopharma, StartMonday Technology
Corp., Lexington Biosciences, and BreathTec Biomedical.” Decl.

of Ryan Murphy (“Decl. of Ryan Murphy II”) ¶ 30, ECF No. 427.
While Sexton attempts to have the Court dismiss this as an
unsupported allegation of “a summary witness,” Sexton’s Opp’n
14, the SEC responds by drawing the Court’s attention to
numerous pieces of evidence from trial exhibits as well as other
witness statements that show that Sexton sold stock of the seven
aforementioned issuers between August 5, 2016, and August 5,
2021. See Pl.’s Reply to Sexton 11 (collecting evidence). In
his sur-reply, Sexton argues that certain pieces of evidence put
forward by the SEC do not meaningfully identify that it was
Sexton who traded the stock of these seven issuers. Sexton’s
Sur-Reply 5-6. Even assuming, arguendo, that Sexton’s

objections have any merit, he fails to respond to witness
testimony as well as other evidence relating to his involvement
in these issuers. See, e.g., Tr. Jury Trial Day Two 108:19-20,
ECF No. 436 (Dhillon’s testimony that Seton participated in the
sale of Vitality stock “in 2017 and maybe even ‘18”); Tr. Jury
Trial Day Five 91:9-18, ECF No. 439 (Knox’s testimony regarding
Sexton’s involvement in Vitality and Arch throughout 2018); Tr.
Jury Trial Day Six 34:24-25, 35:1-2, ECF No. 440 (Knox’s
testimony regarding NewGen trading in 2017).
Sexton’s remaining objections that he, at most, profited
from three out of the seven issuers during the five-year period
and that the penalty amount is excessive, see Sexton’s Opp’n 14-

15, are unavailing. As for profits, Sexton misconstrues the
law: the relevant inquiry for purposes of determining the
applicable period in relation to which civil penalties are to be
imposed is not whether he profited from his misconduct during
the relevant period but rather whether his misconduct, that is,
the illegal stock trading, occurred during that same period.
See, e.g., Securities and Exchange Commission v. Cohen, 332 F.
Supp. 3d 575, 591 (E.D.N.Y. 2018) (“[T]he statute of limitations
runs from when Defendants allegedly engaged in misconduct, not
when they received compensation in connection with that
misconduct.”). Regarding the alleged excessiveness of the
penalty, the SEC convincingly raises two points: (1) that the

Sexton, Veldhuis, and Friesen control group generated a total
amount of $31,000,000 in profits during the five-year window;
and (2) that Sexton “entirely ignores the value of his
significant real estate holdings and other assets not held in
frozen financial institutional accounts.” Pl.’s Reply to Sexton
12. Sexton’s frozen assets already total $13,808,338 as of
December 2022, according to the SEC. Mem. Supp. 14.
Accordingly, this Court overrules Sexton’s objection based on
his purported financial inability to pay the requested civil
penalty.
Much of the above analysis applies with equal force to

Veldhuis and Friesen against whom the SEC requests identical
civil penalties. Veldhuis and Friesen, too, illegally traded in
the stock of seven out of the 14 issuers during the relevant
five-year period.8 Friesen, like Sexton, argues that the SEC has
failed to establish that he engaged in illegal conduct during
the five-year window, averring instead that he simply profited
from some deals that transpired prior to those five years. See
Friesen’s Opp’n 10-11. The voluminous evidence provided during
trial contradicts that contention. See Pl.’s Reply to Friesen 3
(referring to numerous trial exhibits). Indeed, evidence was
put before the jury during trial that indicated Friesen’s –- and
Veldhuis’ –- involvement in the scheme post-dating August 5,

2016. See Pl.’s Reply to Sexton 11; see also Decl. of Ryan
Murphy II ¶ 30 (documenting Friesen and Veldhuis’ engagement in
the trade of stocks of seven out of the 14 issuers during the
applicable window). In view of the foregoing as well as
voluminous evidence from trial demonstrating that Sexton,
Veldhuis, and Friesen acted in concert, the Court is persuaded

8 Since Veldhuis concurs with Sexton’s objections to the
civil penalty sought by the SEC, see Kelln & Veldhuis’ Opp’n 2,
and since those objections have been overruled above, the
remainder of this paragraph deals with Friesen’s objections.
that these three Defendants illegally traded in the stock of
seven issuers between August 2016 and August 2021. See, e.g.,
Tr. Jury Trial Day Five 78, 87-88, 90; Tr. Jury Trial Day Three

13-16, 24, 41, 96-97, ECF No. 437.
The Court also agrees with the SEC that the maximum Tier
III penalty is warranted for each of the seven violations. The
scheme in which Sexton, Veldhuis, and Friesen were involved,
this Court finds, operated through fraud and deceit, thereby
fulfilling the statutory requirement that this Court impose Tier
III penalties against violations involving “fraud, deceit,
manipulation, or deliberate or reckless disregard of a
regulatory requirement.” 15 U.S.C. § 77(t)(d)(2)(B). It is
also clear that their violations “directly or indirectly
resulted in substantial losses or created a significant risk of
substantial losses to other persons,” 15 U.S.C. §

77(t)(d)(2)(C), as it is inconceivable for the scheme these
three Defendants participated in during the five-year period to
not have caused actual loss, let alone a significant risk
thereof.9

9 While courts have split over the issue of whether a
demonstration of actual loss is required to impose a Tier III
penalty, see Lemelson, 596 F. Supp. 3d at 235 (collecting
cases), this Court need not adopt a position as to that split
since here it is clear that investors were defrauded through the
pump-and-dump schemes.
Accordingly, the SEC’s request of one Tier III penalty
multiplied by seven against each of the three Defendants Sexton,
Veldhuis, and Friesen is appropriate and hereby granted. The

Court imposes a civil penalty of $223,229 x 7 = $1,562,603
against each of them.
The Court also grants the SEC’s proposed civil penalty
against Kelln. Pursuant to the partial judgment as to her,
Kelln was ordered to “not contest liability under the claims
filed by the [SEC].” J. as to Kelln 5. Those claims allege
five different violations: (1) an independent violation of
Section 17(a) of the Securities Act; (2) an independent
violation of Section 10(b) of the Exchange Act; (3) aiding and
abetting others in their violation of the Securities Act; (4)
aiding and abetting in their violation of the Exchange Act; and
(5) an independent violation of Section 5 of the Securities Act.

See Mem. Supp 15; see also Am. Compl. ¶¶ 259-58, 277-85.
“Liability under Section 17(a)(1) [and] Section 10(b) . . .
requires materiality and scienter.” Flannery v. SEC, 810 F.3d
1, 9 (1st Cir. 2015). Aiding and abetting securities
violations, as the above discussion regarding Gasarch’s aiding
and abetting violation reveals, see supra pp. 21-24, requires,
at a minimum, knowledge or recklessness. As such, the first
four of the five violations by Kelln, this Court finds, qualify
as Tier III violations.
As for Kelln’s independent violation of Section 5 of the
Securities Act, because liability under thereof need not require
a showing of scienter, a less severe civil penalty is

appropriate. See Securities and Exchange Commission v.
Esposito, 2017 U.S. Dist. LEXIS 192120, at *5-6 (D. Mass. Nov.
21, 2017) (Burroughs, J.) (collecting cases that have held that
a Section 5 violation does not require scienter); Securities and
Exchange Commission v. Smith, 2015 U.S. Dist. LEXIS 86625, at
*25 (D.N.H. July 2, 2015) (“Section 5 imposes no scienter
requirement.”); see also Mem. Supp. 15 (contending that
“liability under [Section 5] does not require a showing of
scienter”). Accordingly, a Tier I civil penalty for Kelln’s
independent and non-scienter-based violation of Section 5 is
appropriate. In sum, a Tier III civil penalty of $223,229 for
each of her first four violations and a Tier I civil penalty of

$11,162 for her Section 5 violation is appropriate. This Court
therefore imposes a civil penalty against Kelln in the amount of
($223,229 x 4) + $11,162 = $904,078.
As for Gasarch, the Court agrees with the SEC’s proposed
methodology for calculating a monetary penalty but is persuaded
that a downward variance from the SEC’s requested amount is
appropriate. At the outset, the Court dismisses Gasarch’s
contention that she merely rendered legitimate secretarial
services to Sharp and, at most, just arranged the distribution
of proceeds after the fraud by other occurred. See Gasarch’s
Opp’n 14. That is precisely the unwitting secretary contention
and defense mounted by Gasarch during trial that the jury

necessarily rejected in finding her liable for various
securities law violations. Relying on the disjunctive “or”
appearing on the jury verdict, see Jury Verdict 2, that found
her liable for alternative aiding and abetting violations,
Gasarch contends that she is liable for, at most, two
violations: (1) an independent violation of Section 17(a)(3) of
the Securities Act and (2) one aiding and abetting violation of
securities laws. See Gasarch’s Opp’n 14.
Gasarch is not wrong, per se, to argue that the jury, in
addition to finding her independently liable for a violation of
Section 17(a)(3) of the Securities Act, may have found that she
aided and abetted just one of the two violations separated by

the disjunctive “or” on the jury slip. Conversely, the jury may
have found Gasarch liable for aiding and abetting both
Securities Act and Exchange Act violations in addition to her
independent violation of the Securities Act.
Moreover, and more importantly, for purposes of fashioning
appropriate remedies in the context of a securities enforcement
adjudication, “[a]t the remedies stage, trial judges may make
factual findings and rely on such findings in assessing the
amount of civil penalties so long as the court’s findings do not
conflict with the jury’s findings as to liability.” Securities
and Exchange Commission v. Life Partners Holdings, Inc., 854
F.3d 765, 781-82 (5th Cir. 2017). At trial, this Court found

that Gasarch worked “at the hub” of the fraudulent Sharp
enterprise. See Tr. Jury Trial Day Eight 41:10, 164:21, ECF No.
442. In her role as Sharp’s aide working “at the hub,” id., she
aided and abetted the Sharp scheme clients in their violation of
both the Securities Act and the Exchange Act. This finding does
not conflict but rather comports with and honors the jury
verdict against Gasarch.
Accordingly, this Court agrees with the SEC that she is
liable for three violations: (1) her independent violation of
Section 17(a)(3) of the Securities Act; (2) aiding and abetting
others in their violation of the Securities Act; and (3) aiding
and abetting others in their violation of the Exchange Act. See

Mem. Supp. 15. Further, in view of the earlier discussion that
Gasarch’s aiding and abetting required scienter, see supra pp.
21-24, a Tier III monetary penalty for her two aiding and
abetting violations is appropriate. As for her independent
violation of Section 17(a)(3) of the Securities Act, a Tier II
penalty is appropriate, as an independent violation of Section
17(a)(3) does not require a showing of scienter. See Sharp, 626
F. Supp. 3d at 382; see also supra p. 22.
While the Court agrees with the SEC’s proposed methodology
for imposing a monetary penalty against Gasarch, the Court will
not impose the exact amount proposed by the SEC of ($223,229 x
2)10 + $111,61411 = $558,072. At least three reasons persuade

this Court that a downward variance is appropriate. First,
while this Court indeed found Gasarch to be an operative of the
Sharp scheme and one at its hub, see Tr. Jury Trial Day Eight
41:10, 164:21, her role at the hub was necessarily under the
command of Sharp and also meant that she did not operate at the
spoke end of the hub-and-spoke scheme, where investors were
directly harmed. Second, evidence presented at trial points to
the fact that Gasarch was involved in the fraudulent enterprise
not at the outset but later in time.12 As such, the Court finds
that, at least as an initial matter, prior to joining the scheme
as co-conspirator, Gasarch performed legitimate secretarial

10 A total of two Tier III penalties for Gasarch’s two
aiding and abetting violations: one for aiding and abetting
Securities Act violations and the other for aiding and abetting
Exchange Act violations.

11 One Tier II penalty for Gasarch’s independent and non
scienter-based violation of Section 17(a)(3) of the Securities
Act.

12 At trial, the Court stated as much: “[Gasarch] joined the
conspiracy later in time than her initial employment, which
candidly I think is the fact, I’m not persuaded she was a co-
conspirator at that time, whenever it was, that she became
employed by Sharp. I’m not clear when she joined the
conspiracy.” Tr. Jury Trial Day Eight 165:8-13.
services to Sharp. Third, the two Tier III civil penalties
against her are in relation to Gasarch’s aiding and abetting,
not independent and primary, violations. While her aiding and

abetting required its own mental culpability and scienter,
equitable considerations demand that a lesser civil penalty be
imposed against her than other Defendants whom she aided and
abetted in their primary and scienter-based violations of the
various securities laws. Cf. Securities and Exchange Commission
v. Zwick, 2007 U.S. Dist. LEXIS 19045, at *83-84 (S.D.N.Y. Mar.
16, 2007) (imposing a Tier III penalty against an aider and
abettor but with a downward variance because of aider and
abettor status, as opposed to being the primary violator, among
other reasons).
In view of the fact that the SEC submits to this Court that
as of December 2022 Gasarch has $296,651 in frozen assets, the
Court imposes a civil penalty of $296,651 against her.13

13 The Court observes that the civil penalty amounts
requested by the SEC are all based on inflation-adjusted figures
from 2023. See Mem. Supp. 12. Since the SEC moved for remedies
in December 2023, the SEC has updated its civil penalty amounts,
announcing in January 2024 its inflation adjustment figures for
2024. See Inflation Adjustments to the Civil Monetary Penalties
Administered by the Securities and Exchange Commission (as of
January 15, 2024), SEC.gov (Jan. 16, 2024),
https://www.sec.gov/enforce/civil-penalties-inflation-
adjustments. The question arises whether the Court ought
consider the most recent inflation-adjusted figures for 2024 or
instead ought consider the inflation-adjusted figures for 2023
used by the SEC in its calculation.
C. Disgorgement and Prejudgment Interest Against All of
the Defendants

1. Legal Standard
Disgorgement is an equitable remedy that is intended to
deprive a wrongdoer of his ill-gotten gains at the expense of
victims. See Liu v. SEC, 591 U.S. 71, 75 (2020) (clarifying
“that a disgorgement award that does not exceed a wrongdoer’s
net profits and is awarded for victims is equitable relief
permissible under § 78(u)(d)(5)”). Liu provided three
clarifications to disgorgement law.
First, it clarified that disgorgement is non-punitive and
intended to make victims whole. See id. at 74 (defining courts’
power to award equitable relief as “a power that historically
excludes punitive sanctions”); id. at 75 (holding that a
disgorgement award “is awarded for victims”); see also Sharp,
626 F. Supp. 3d at 380 (“The Supreme Court has entrenched
disgorgement’s non-punitive character in the context of
securities violations, by requiring that it be used to make
victims whole.”).

The parties have not raised the issue of inflation
adjustment in their briefs nor during oral argument. In the
interest of fairness, the Court will not adjust figures to
reflect inflation for 2024, although it is highly likely that
the Court has the equitable power to do so sua sponte. Cf.
Weed, 315 F. Supp. 3d at 677 (taking notice of the SEC’s
“increasing the maximum Tier-III penalty from the statutory
limit of $100,000 to account for inflation adjustments”).
Second and relatedly, a disgorgement award ought be limited
to a wrongdoer’s “net profits,” Liu, 591 U.S. at 75, calculated
by “deducting legitimate expenses” from a wrongdoer’s gross ill-

gotten gains, id. at 1946. The Court noted one historical
exception to the rule that legitimate expenses ought be
diminished from the show of profits, defining that exception as
“when the entire profit of a business or undertaking results
from [a] wrongful activity.” Id. at 84 (quotation omitted).
Third, Liu clarified that the general rule in awarding
disgorgement is to hold wrongdoers individually liable for their
personal ill-gotten gains. See id. at 82-83 (“Equity courts
also generally awarded profits-based remedies against
individuals or partners engaged in concerted wrongdoing, not
against multiple wrongdoers under a joint-and-several liability
theory.”). Reviewing a corpus of precedents, the Supreme Court

observed that a “rule against joint-and-several liability for
profits that have accrued to another appears throughout equity
cases awarding profits.” Id. Still, the Supreme Court also
observed that “[t]he common law did . . . permit liability for
partners engaged in concerted wrongdoing.” Id. at 90.
In sum, then, “[t]he [C]ourt’s power to order disgorgement
extends only to the amount with interest by which the defendant
profited from his wrongdoing.” Securities and Exchange
Commission v. MacDonald, 699 F.2d 47, 54 (1st Cir. 1983) (en
banc) (quoting Securities and Exchange Commission v. Blatt, 583
F.2d 1325, 1335 (5th Cir. 1987)). “[C]ourts consistently
restrict[] awards to net profits from wrongdoing after deducting

legitimate expenses[,]” Liu, 591 U.S. at 84, though it is also
possible –- under exceptional circumstances -- to dispense with
that requirement, especially if the entire business,
undertaking, or enterprise involves wrongful activity, id. at
83.
In any case, “[t]he amount of disgorgement ‘need only be a
reasonable approximation of profits causally connected to the
violation.’” Securities and Exchange Commission v. Happ, 392
F.3d 12, 31 (1st Cir. 2004) (quoting Securities and Exchange
Commission v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C.
Cir. 1981)). “The risk of uncertainty in calculating
disgorgement should fall on the wrongdoer whose illegal conduct

created that uncertainty.” Id. “Once the SEC shows that the
disgorgement is a reasonable approximation, the burden shifts to
the defendant to demonstrate that the amount of disgorgement is
not a reasonable approximation.” Id.
Finally, the Court takes notice of its previous holding
regarding the applicable statute of limitations in issuing
disgorgement awards: scienter-based claims for disgorgement
require a ten-year statute of limitations whereas non-scienter-
based claims for disgorgement “continue to require a five-year
statute of limitations.” Sharp, 626 F. Supp. 3d at 381.
2. Parties’ Arguments

The SEC requests this Court issue disgorgement awards in
the following amounts: (1) $17,367,474 against Sexton; (2)
$13,289,897 against Veldhuis; (3) $11,846,176 against Friesen;
(4) $1,582,785 against Kelln; and (5) $2,522,367 against
Gasarch. Mem. Supp. 1.
The SEC bases its calculation “on the sums that each of
them received into their personal Q accounts of the Fourteen
Issuers whose illegal trading was at issue.”14 Id. at 17-18.
The SEC further asserts that the applicable statute of
limitations is ten, not five, years, rendering the Defendants’
profits from 2011 –- not from 2016 –- onward susceptible to
disgorgement. Id. at 17 (“[I]t is appropriate to award

disgorgement for a ten-year time period, given that each of the

14 As the following discussion on the Q data will make
clear, in proposing respective amounts for its proposed
disgorgement awards, the SEC focuses on a specific piece of
evidence presented at trial: the so-called “Q records” or “Q
data” that is a compilation of internal records kept by Sharp
that the SEC contends shows stock proceeds allocated to each of
the Defendants that they gained throughout the course of the
pump-and-dump scheme, as well as commissions received by some of
them. See, e.g., Mem. Supp. 17-18, 19, 21.
Separately, because some of the transfers reflected on the
Q system were made in Canadian Dollars, the SEC informs the
Court that its estimate “converts all of those transfers into US
Dollars, using the applicable exchange rate on the date of the
transfer in the Q system.” Id. at 18.
Defendants was found liable, or is being held liable, for
violating a statute requiring the proof of scienter as an
element.”). As such, the SEC requests the Court award

disgorgement based on the time period from August 5, 2011, that
is, ten years before the SEC filed this present action. Id.
The Defendants object to the SEC’s position as well as the
specific award amounts proposed by the SEC on numerous grounds.
After having carefully reviewed their briefs and the arguments
made during the hearing held on the question of remedies, the
Court distills these various objections to seven separate
contentions.
First, the Defendants impeach the credibility of the Q data
evidence by variously characterizing it as hearsay or as a
document susceptible to manipulation. See, e.g., Sexton’s Opp’n
6 (arguing that “the Court has already ruled, the database is

not a business record, because, among other issues, there are
not sufficient indications that the records were entered
contemporaneously”); Kelln & Veldhuis’ Opp’n 2 (concurring with
Sexton’s objections); Friesen’s Opp’n 5 (characterizing Q
records as inadmissible hearsay); Gasarch’s Opp’n 2, 7-8
(arguing that the Q data is unreliable and unverified). As a
corollary to the objection regarding its reliability, Gasarch
also contends that there is no evidence that the designations
“PEAC” or “PERE” in the Q data indicate her Q account.
Gasarch’s Opp’n 4.
Second, even assuming that the Q data is reliable, the

Defendants argue, it shows, at most, the proceeds generated over
the course of a decade but, crucially, not the actual
disbursements made from the generated proceeds to the individual
Defendants. Sexton argues that the Q system may be considered
indicative of the stock transactions that transpired, but that
there is no evidence that this data is reflective of “the
division of proceeds stemming from those transactions.”
Sexton’s Opp’n 7. In furtherance of his objection, Sexton also
points out that the SEC has not presented this Court with any
“documentary evidence to corroborate the purported gains” shown
on the Q system, specifically, bank records that would verify
that the Q system transfers actually happened and were received

by the Defendants. See id. at 4-5; see also Kelln & Veldhuis’
Opp’n 2 (concurring with Sexton’s objections). Friesen, too,
argues that the Q records, at most, indicate stock entries but
not actual transfers to each of the Defendants. See Friesen’s
Opp’n 7.
Third, the Defendants argue that the SEC has not shown that
any transfers that they may have received from trading in all 14
of the issuers are ill-gotten, and not legitimate, gains. See
Sexton’s Opp’n 8 (arguing that the SEC “has not tied funds to
violations of the securities laws”); Kelln & Veldhuis’ Opp’n 2
(same); Friesen’s Opp’n 3 (same); Gasarch’s Opp’n 12 (rejecting
the SEC’s position that she received ill-gotten funds).

Fourth, the Defendants argue that the SEC has failed to
show that disgorgement would make victims whole, as the SEC has
failed to specifically point to any victims who have suffered
pecuniary harm as a result of the Defendants’ alleged
misconduct. Sexton avers, for example, that the SEC “has not
established that there are any victims to whom disgorgement
should be allocated.” Sexton’s Opp’n 10; see also Friesen’s
Opp’n 8-9 (same); Gasarch’s Opp’n 10-11 (same).
Fifth, the Defendants argue that the SEC, in relying on the
sums reflected in the Q system to calculate proposed
disgorgement award amounts, failed to factor out legitimate
expenses and payments received by the Defendants. Friesen

agues, for example, that the Q records also show repayments,
debt payments, and offsets, which the SEC has not but should
have considered in its calculation. Friesen’s Opp’n 6. Gasarch
similarly contends that the SEC does not attempt to factor out
“legitimate” payments to her for her secretarial services.
Gasarch’s Opp’n 4-5, 10.
Sixth, the Defendants contend that disgorgement is time-
barred as the SEC has failed to establish that disgorgement is
tied to scienter-based conduct. Sexton’s Opp’n 11; Gasarch’s
Opp’n 12 (similar).
Seventh, the Defendants argue that the SEC should have but

has not avoided double counting in its calculations, failing to
offset funds frozen or funds collected from others –- such as
Sharp, Knox, or Dhillon –- involved in the Sharp enterprise.
See ECF No. 484.
3. Analysis
After reading the briefs and hearing the above-mentioned
objections from Defendants during a hearing held on the question
of remedies, the Court took the issue of disgorgement and
prejudgment interest under advisement. See id. The Court is
now prepared to rule on the issue and for the following reasons
GRANTS the SEC’s motion for disgorgement in its entirety,
subject to certain caps as described below, see infra pp. 56-57,

and DENIES its motion for prejudgment interest in its entirety.
First, the Court has previously rejected, and once again
rejects, characterizations of the Q data that seek to describe
it as hearsay. While the Court did not make a final finding
during the course of the trial, it intimated that it was
prepared to admit the Q system into evidence under the business
records exception to the rule against hearsay. See generally
Tr. Jury Trial Day Four 69-72, ECF No. 438 (the Court, upon
hearing from witness testimony, holding that the Q data “would
seem to satisfy the business records exception”; noting that not
“anyone could write in the book”; holding that the Q data
“satisfies the requirements of a business record”); see also Tr.

Hr’g Disgorgement 24:8-11, ECF No. 491 (the Court holding during
the hearing on remedies that “[t]his Court is satisfied that the
Q system records qualify as business records under the federal
rules of evidence”). Thus, the Q system is admissible evidence
and not hearsay.
Further, the Defendants’ efforts to describe the Q data as
easily manipulable are unavailing. See, e.g., Tr. Jury Trial
Day Two 10:15-16 (Gasarch contending that Sharp “had the power
as the administrator to change all the Q data”); id. at 21:11-12
(Friesen describing the Q system data as Sharp “sort of
inputting data apparently in any way that he sees fit”); see
also id. at 21:18-19 (Friesen arguing that the Q system data “is

not a believable, authentic, reliable recitation of anything”);
Tr. Jury Trial Day Nine 61:2 (Gasarch calling the Q data
“garbage”). That Sharp may have been the main administrator of
the Q system, see, e.g., Tr. Jury Trial Day Seven 129:3, ECF No.
441 (witness testimony characterizing the Q system as “[Sharp]’s
own accounting system”), does not by itself demonstrate that the
data has been unreliably manipulated.
The SEC has compared the Q data to independent brokerage
records, Decl. of Ryan Murphy I ¶ 15, and the comparison has
returned a very high rate of accuracy. As the affidavit of Ryan
Murphy indicates, the comparison between Q data for each of the
14 issuers and independent brokerage records has confirmed the

reliability of Q data with considerable accuracy: (1) 95% for
Stevia First/Vitality, id. ¶ 17; (2) 94% for Echo Automotive,
id. ¶ 20; (3) 97% for Arch Therapeutics, id. ¶ 23; (4) 100% for
Stevia Corp., id. ¶ 26; (5) 95% for Liberty One Lithium Corp.,
id. ¶ 29; (6) 96% for Oryon Technologies, id. ¶ 31; (7) 100% for
Makism 3D Corp., id. ¶ 33; (8) 98% for Graphite Corp., id. ¶ 35;
(9) 97% OncoSec Medical Inc., id. ¶ 37; (10) 97% for NewGen
Biopharma Corp., id. ¶ 39; (11) 91% for StartMonday Technology
Corp., id. ¶ 41; (12) 100% for Lexington Biosciences Holdings
Corp., id. ¶ 43; (13) 100% for BreathTec Biomedical Inc., id. ¶
45; and (14) 75% for RightsCorp., id. ¶ 47. While the
Defendants are correct to argue that only a sample, and not all,

of the brokerage records and Q transactions were compared, they
do not meaningfully challenge, much less demonstrate, how the
sample is not representative. Securities and Exchange
Commission v. Commonwealth Equity Servs., LLC, 2024 U.S. Dist.
LEXIS 59361, at *28 (D. Mass. Mar. 29, 2024) (Talwani, J.)
(rejecting the argument that the SEC’s sample was “cherry-
picked”). Accordingly, the Q record, as a comparison with
independent brokerage records confirms, is a detailed and highly
accurate representation of the funds generated by the Sharp
pump-and-dump schemes.
The Court is further persuaded that the Q data is highly

accurate since evidence presented at trial demonstrated that Q
system entries were made very close in time to the illegal
trading that occurred. See, e.g., Tr. Jury Trial Day Six 49:9
(witness testimony that Q entries were made within “less than 24
hours” following trade). The Court therefore finds the Q data
reliable and credible evidence of the proceeds generated through
the illegal trading that occurred with respect to the 14
issuers.
Second, the Court rejects the Defendants’ contention that
there is no evidence that the proceeds recorded in the Q system
were actually disbursed and distributed to and received by the
Defendants. To be sure, the Defendants are correct to point out

that the SEC compared the Q data to independent brokerage
records but did not “look at any bank records.” Tr. Jury Trial
Day Eight 150:22 (SEC analyst testifying that he did not look at
bank records to confirm receipt of the proceeds by the
Defendants). The Defendants repeatedly emphasized this point
during the hearing on remedies. See Tr. Hr’g Disgorgement
16:12, 17:1, 20:21-22, (mentioning the lack of evidence that the
Defendants “actually received money”; that there are no “funds
received were by us”; and asking the Court to focus on “what the
individual actually received”). Moreover, witness testimony at
trial seemed to indicate that not all of the proceeds generated
by the pump-and-dump scheme actually went to the Defendants.

See, e.g., Tr. Jury Trial Day Seven 89.
The SEC notes that the Q system shows the transfers of
illegal stock sale proceeds from the issuer accounts into each
of the Defendants’ personal accounts, and that the system shows,
just like a bank account would, the Defendants paying their
mortgages, paying the expenses of their family members, and
making other transfers. See Tr. Hr’g Disgorgement 26:9-17.
This, while true, does not change the fact that the SEC has not
submitted any bank records to this Court that show actual
receipt of funds by the Defendants.
Having carefully reviewed the record and considered the
question of the lack of bank records showing actual receipt of

funds by the Defendants, this Court is persuaded, for the
following reasons, that the balance of equities favors the
awarding of the disgorgement amounts requested by the SEC.
First, the Q data’s high degree of internal accuracy as to the
proceeds generated counsels a similar finding of accuracy as to
its figures regarding the money going into the Defendants’
personal Q accounts, especially because the Defendants failed to
argue, much less show, that there is money in their accounts in
the Q system that still remains there. See Happ, 392 F.3d at 31
(burden of proof shifting to defendants once SEC makes a
reasonable approximation).
Second, the production of bank records confirming actual

receipt of funds, to this Court’s knowledge, has never been
declared a sine qua non before finding the SEC’s disgorgement
calculation reasonable. Rather, courts in this district and in
others have looked at bank records in combination with other
evidence and sometimes have not looked at bank records at all.
See, e.g., Securities and Exchange Commission v. Lazare Indus.,
294 Fed. Appx. 711, 715 (3d Cir. 2008) (holding that the
defendants’ argument that the district court “abused its
discretion in fixing the amount of disgorgement because the SEC
did not offer bank records showing that defendants actually
received the amounts memorialized on the subscription
agreements” “lacks merit”); Securities and Exchange Commission

v. Eiten, 2014 U.S. Dist. LEXIS 139428, at *3 (D. Mass. Sept.
30, 2014) (O’Toole, J.) (finding the SEC’s disgorgement
calculation based on “bank records, other financial information,
and documents” reasonable).
Third and most importantly, in cases involving concerted
wrongdoing, joint and several liability may be appropriate, in
which case the ill-gotten gains subject to disgorgement need not
accrue to each defendant individually.15 Cf. Securities and
Exchange Commission v. San Francisco Reg'l Ctr. LLC, 2019 U.S.
Dist. LEXIS 4983, at *9-10 (N.D. Cal. Jan. 10, 2019) (rejecting

the SEC’s contention that the court can disgorge profits
accruing to a defendant that “it never had” because SEC failed
to articulate a conspiracy claim and that the defendant was “a
participant in the wrongdoing”). Here, the Defendants were co-
conspirators within a hub-and-spoke model: Gasarch conspired
with Sharp; Kelln conspired with Sharp; and Sexton, Veldhuis,
and Friesen conspired with each other and with Sharp as part of

15 Here, the Court notes that the antecedent question may
arise as to whether joint and several liability is permissible
in the context of disgorgement. As noted above, Liu, while
articulating the default rule of individual liability in the
disgorgement context, still carved out an exception applicable
to instances of “concerted wrongdoing.” Liu, 591 U.S. at 90.
Further, the Liu Court eschewed “wad[ing] into all the
circumstances where an equitable profits remedy might be
punitive when applied to multiple individuals[,]” id. at 91,
remanding the case to the lower court instead so that it could
determine whether joint and several liability would be
appropriate, “[g]iven the wide spectrum of relationships between
participants and beneficiaries of unlawful schemes—from equally
culpable codefendants to more remote, unrelated tipper-tippee
arrangements.” Id. As such, the Liu Court recognized the
permissibility of assigning joint and several liability to
defendants engaged in concerted wrongdoing.
Post-Liu, at least two sessions of this Court have held
securities law offenders jointly and severally liable for
disgorgement. See Knox, 2022 U.S. Dist. LEXIS 99321, at *11
(“The interchangeable role the Entity Defendants played within
the scheme makes joint and several liability appropriate.”); see
also Securities and Exchange Commission v. Gomes, 2022 U.S.
Dist. LEXIS 191457, at *19-20 (D. Mass. Oct. 20, 2022) (Saylor,
C.J.).
specific pump-and-dump schemes. As such, joint and several
liability is appropriate: Gasarch is jointly and severally
liable with Sharp; Kelln is jointly and severally liable with

Sharp; and Sexton, Veldhuis, and Friesen are jointly and
severally liable with Sharp. Given that Sharp was a co-
conspirator in each of the conspiracies, the ill-gotten gains
need not have accrued personally to each of the Defendants –-
that they may have partially or entirely accrued to Sharp
suffices to award disgorgement. See Securities and Exchange
Commission v. Platforms Wireless Int'l Corp., 617 F.3d 1072,
1098 (9th Cir. 2010) (“We hold that the district court did not
abuse its discretion in holding Martin jointly and severally
liable with Platforms. We have never held that a personal
financial benefit is a prerequisite for joint and several
liability.”); see also Securities and Exchange Commission v.

Monterosso, 756 F.3d 1326, 1337-38 (11th Cir. 2014)
(“[Defendant] argues it would be inequitable to hold him liable
for disgorgement when he did not receive proceeds. The Ninth
Circuit, however, has stated, and we agree, a personal financial
benefit is not a prerequisite for joint and several liability.”
(quotations omitted)).
The Court, in exercising its “broad discretion not only in
determining whether or not to order disgorgement but also in
calculating the amount to be disgorged[,]” Securities and
Exchange Commission v. Druffner, 802 F. Supp 2d 293, 297 (D.
Mass. 2011) (Gorton, J.) (quotation omitted), will, however, cap
the individual amount that may be disgorged from each of the

Defendants, notwithstanding their joint and several liability,
at the following amounts requested by the SEC based on the Q
system data: (1) $17,367,474 against Sexton; (2) $11,846,176
against Friesen; (3) $13,289,897 against Veldhuis; (4)
$1,582,785 against Kelln; and (5) $2,522,367 against Gasarch.
Third, the Court finds the remaining objections raised by
the Defendants unavailing. As evidence submitted to this Court
as well as presented during trial indicates, the proceeds
reflected in the Q system are, absent any showing to the
contrary proffered by the Defendants, generated by illegal pump-
and-dump schemes that involved 14 different issuers.
Additionally, the argument the SEC has failed to show any

victims is premature: the SEC has agreed in writing, see, e.g.,
Mem. Supp. 22-24, and verbally represented to this Court during
the hearing on remedies, see ECF No. 482, that a plan can and
will be submitted to the Court, to its satisfaction, detailing
plans to return the disgorged funds to the harmed investors.
The objection that disgorgement is time-barred is also
without merit, as all of the Defendants acted with varying
degrees of scienter, rendering the applicable statute of
limitations ten, not five, years. Finally, as to offsetting
legitimate expenses, the Defendants’ objections are, again,
unpersuasive for two reasons. First, the Defendants do not
meaningfully counter the SEC’s calculation by any showing how

certain payments were indeed legitimate, bearing in mind the
SEC’s obligation is to formulate a “reasonable approximation.”
Happ, 392 F.3d at 31. Second, even though there may have been
incidental expenses that could be offset, the exception
articulated in Liu that offsetting or diminishing legitimate
business expenses is not necessary where the enterprise itself
is fraudulent, see Liu, 591 U.S. at 83-84, is applicable here.
For the foregoing reasons, the Court holds the Defendants
jointly and severally liable as follows:
- Gasarch is jointly and severally liable with Sharp for
disgorgement in the amount of $2,522,367;
- Kelln is jointly and severally liable with Sharp for

disgorgement in the amount of $1,582,785; and
- Sexton, Veldhuis, and Friesen are jointly and severally
liable with Sharp for disgorgement in the amount of $42,503,547;
provided, however, that the amount to be disgorged from Sexton,
Veldhuis, and Friesen will be capped at, and shall not exceed,
$17,367,474, $13,289,897, and $11,846,176, respectively.
The disgorgement awards are, of course, subject to the
SEC’s submission, and this Court’s approval, of a plan detailing
how the disgorged funds will be returned to the harmed
investors.
4. Prejudgment Interest

“Prejudgment interest, like disgorgement, prevents a
defendant from profiting from his securities violations.”
Sargent, 329 F.3d at 40 (internal quotations omitted). “An
award of prejudgment interest is based on consideration of a
variety of factors, including the remedial purpose of the
statute [involved], the goal of depriving culpable defendants of
their unlawful gains, and . . . unfairness to defendants.” Id.
(citing Securities and Exchange Commission v. First Jersey
Securities, 101 F.3d 1450, 1477 (2d Cir. 1996)). The award of
prejudgment interest in securities violations prevents a
defendant from “receiving the benefit of what would otherwise be
an interest-free loan.” Druffner, 802 F. Supp. 2d at 298.

Here, the SEC seeks prejudgment interest against all five
Defendants. See Mem. Supp. 24. The SEC “computed prejudgment
interest using the IRS underpayment rate, compounded quarterly
on defendants’ net proceeds for each calendar year separately,
assuming (favorably to the defendants) that each year’s net
profit was received on the last day of the year in which it was
received into each defendant’s personal Q account.” Id. at 25.
The end date for the SEC’s calculation is August 5, 2021, when
the SEC obtained the asset freeze against the Defendants. See
id. The IRS methodology for calculating prejudgment interest is
one which other sessions of this Court have previously
determined to be appropriate. See, e.g., Commonwealth Equity

Servs., LLC, 2024 U.S. Dist. LEXIS 59361, at *34; Securities and
Exchange Commission v. Esposito, 260 F. Supp. 3d 79, 83 (2017)
(Burroughs, J.).
Accordingly, the SEC asks that the Defendants pay the
following amounts in prejudgment interest: (1) $5,872,145
against Sexton; (2) $4,314,031 against Veldhuis; (3) $4,057,737
against Friesen; (4) $460,687 against Kelln; and (5) $646,366
against Gasarch. Mem. Supp. 25.
The Defendants do not meaningfully oppose, having instead
focused their objections on the SEC’s request for disgorgement.
Sexton argues, however, that the SEC “has not presented any
evidence that [he] invested any funds or even placed them in an

interest-bearing account.” Sexton’s Opp’n 13. Sexton
misconstrues the law here: a showing of the defendant gaining
interest on the ill-gotten funds is not necessary for the Court
to award prejudgment interest. The very act of obtaining and
retaining ill-gotten funds is enough for defendants to benefit
from what resembles an interest-free loan: a showing that the
Defendants used ill-gotten funds to make more money out of it is
not necessary. Cf. Druffner, 802 F. Supp. 2d at 298 (“The
defendants derived direct monetary benefit from their
misrepresentations and retained those profits unjustly.”).
Because this Court holds the Defendants jointly and

severally liable as described above, see supra pp. 54, 56,
however, the imposition of prejudgment interest is not
equitable. In holding the Defendants jointly and severally
liable, the Court noted above that the ill-gotten gains need not
have accrued to each of the individual offenders, see supra p.
54, and noted further that it suffices in the context of
disgorgement for ill-gotten gains to have accrued to one or more
of the co-conspirators.
The institution of prejudgment interest is premised, on the
other hand, on the notion that a wrongdoer derives direct
monetary benefit by unjustly “retain[ing]” profits. Druffner,
802 F. Supp. 2d at 298. While the Q data evidence, verified by

external brokerage records, persuades this Court that ill-gotten
gains have been generated by the pump-and-dump scheme
perpetrated by the Defendants -- irrespective of to whom among
the co-conspirators the proceeds accrued -- thereby
necessitating disgorgement, the same data does not show that
ill-gotten gains have been obtained and retained by the
individual Defendants, much less in the amounts requested by the
SEC. Where actual accrual to each of the Defendants cannot be
shown and where it is entirely possible that at least a portion
of the ill-gotten gains may never have reached the pockets of
individual Defendants, it is not possible to speak with any
reasonable degree of certainty that the Defendants benefited

from what resembled an “interest-free loan.” Sargent, 329 F.3d
at 41.
Additionally, and equally importantly, as “[t]he decision
whether to grant prejudgment interest [is] confided to the
district court’s broad discretion,” Sargent, 329 F.3d at 40
(quotation omitted), this Court, in view of having issued
injunctive relief, imposed monetary penalties, and awarded
disgorgement, is satisfied that the foregoing relief will serve
a significant remedial purpose. Going any further and awarding
prejudgment interest, in the absence of a precise determination
as to the amount of ill-gotten gains actually obtained by the
individual co-conspirators in the various conspiracies, may

occasion unfairness to defendants. Having weighed these
factors, the Court will not award prejudgment interest. Cf. id.
at 40-41 (upholding a district court’s finding of joint and
several liability in the context of disgorgement, its
disgorgement award, and its refusal to award prejudgment
interest).
For the foregoing reasons, this Court DENIES the SEC’s
motion for prejudgment interest.
IV. CONCLUSION
Pursuant to the proposed judgments by the SEC, see ECF No.
485, which this Court hereby incorporates into this memorandum
and order, injunctive relief will issue forthwith.

Civil penalties imposed against the Defendants in these
amounts:
- Sexton: $1,562,603
- Friesen: $1,562,603
- Veldhuis: $1,562,603
- Kelln: $904,078
- Gasarch: $296,651
Such sums will be payable to the SEC within 30 days after entry
of this memorandum and order, and together with it, entry of the
incorporated judgments as to the Defendants.
Disgorgement, is ordered as follows:
- Gasarch is jointly and severally liable with Frederick L.

Sharp (“Sharp”) for disgorgement in the amount of $2,522,367;
- Kelln is jointly and severally liable with Sharp for
disgorgement in the amount of $1,582,785; and
- Sexton, Veldhuis, and Friesen are jointly and severally
liable with Sharp for disgorgement in the amount of $42,503,547;
provided, however, that the amount to be disgorged from Sexton,
Veldhuis, and Friesen will be capped at, and shall not exceed,
$17,367,474, $13,289,897, and $11,846,176, respectively.
The disgorgement awards shall be subject to the SEC’s
submission, and this Court’s approval, of a plan detailing how
the funds disgorged will be used to make victims whole. The SEC

shall submit said plan in due course and without any
unreasonable delay.
No prejudgment interest will be awarded.
For the reasons elucidated above, the Court GRANTS the
SEC’s motion for remedies in part, ECF No. 425.

SO ORDERED.

_/s/ William G. Young_
WILLIAM G. YOUNG
JUDGE
of the
UNITED STATES16

16 This is how my predecessor, Peleg Sprague (D. Mass. 1841-
1865), would sign official documents. Now that I’m a Senior
District Judge I adopt this format in honor of all the judicial
colleagues, state and federal, with whom I have had the
privilege to serve over the past 46 years.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10202059. Public record. Not legal advice.