Securities and Exchange Commission of the United States v. Laura

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

MEMORANDUM AND ORDER

v.

18-cv-5075 (HG) (VMS)

JOSEPH M. LAURA, ANTHONY R.

SICHENZIO, and WALTER GIL DE RUBIO,

Defendants.

HECTOR GONZALEZ, United States District Judge:

Table of Contents

INTRODUCTION .......................................................................................................................... 2

FACTUAL BACKGROUND ......................................................................................................... 3

I. Parties ................................................................................................................................... 3

II. Timeline ............................................................................................................................... 4

III. The Investor Agreements ..................................................................................................... 7

IV. Money Raised by Laura and Sichenzio ............................................................................... 9

V. PAG’s Bankruptcy ............................................................................................................. 10

PROCEDURAL HISTORY.......................................................................................................... 10

EXPERT TESTIMONY DISCUSSION ....................................................................................... 11

I. Lesa Adair .......................................................................................................................... 12

II. Michael LaBrie .................................................................................................................. 14

III. Farid Sigari-Majd ............................................................................................................... 16

SUMMARY JUDGMENT LEGAL STANDARD ...................................................................... 17

SUMMARY JUDGMENT DISCUSSION ................................................................................... 18

I. Laura—Misstatement Liability .......................................................................................... 19

A. The Investor Agreements Are Securities ....................................................................... 21

B. Laura Made Material Misstatements .............................................................................. 22

1. Ownership of the Cold Cracking Technology ............................................................ 22

2. Revenue Share Agreements ........................................................................................ 24

3. Anticipated Production Date ...................................................................................... 26

4. “Working Capital” ...................................................................................................... 28

C. Scienter ........................................................................................................................... 29

II. Laura—Liability as an Unregistered Broker...................................................................... 31

III. Laura & Sichenzio—Scheme Liability .............................................................................. 33

IV. Sichenzio—Aiding and Abetting Laura’s Misrepresentations .......................................... 35

V. Statute of Limitations ......................................................................................................... 38

CONCLUSION ............................................................................................................................. 40

INTRODUCTION

Plaintiff Securities and Exchange Commission (the “SEC”) filed this action against

Joseph M. Laura and Anthony Sichenzio (collectively “Defendants,”) on September 7, 2018.1

The Complaint alleges that Laura violated Sections 17(a)(1), (2), and (3) of the Securities Act of

1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”)

and Rule 10b-5 thereunder, and Section 15(a)(1) of the Exchange Act. The Complaint alleges

that Sichenzio violated Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the

Exchange Act and Rules 10b-5(a) and (c) thereunder, and aided and abetted Laura’s violations of

Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b)

thereunder. See ECF No. 1 (“Compl.).

Before the Court is the SEC’s motion for summary judgment against both Defendants,

ECF No. 145, as well as Defendants Laura and Sichenzio’s joint motion for partial summary

judgment and to strike the SEC’s expert reports. ECF No. 156. The Court consolidates those

motions for the purposes of this order. For the reasons set forth below, the Court grants in part

and denies in part the SEC’s motion for summary judgment and denies Defendants’ motions for

partial summary judgment and to strike expert testimony.

1 A third Defendant, Walter Gil de Rubio, has settled with the SEC and is not a party to

this motion. See ECF No. 168 (SEC’s motion for judgment based on settlement as to Defendant

Walter Gil de Rubio); ECF No. 169 (granting SEC’s motion for judgment).

2

FACTUAL BACKGROUND

I. Parties

A. Laura and Sichenzio

Both Laura and Sichenzio were New Jersey residents. ECF No. 152 ¶¶ 1, 8 (Defs. 56.1).

Laura was a lawyer with no training in science or physics and had no background in the oil

business before the formation of Pristec America, Inc. (“PAI”). Id. ¶¶ 2–5. Sichenzio was

employed by a registered broker-dealer, including for part of the time when the events in the

Complaint were taking place. Id. ¶¶ 8–10. Laura had previously borrowed money from

Sichenzio, and, by 2010, owed him approximately $1 million. Id. ¶¶ 150–55.

B. Pristec AG

Pristec AG (“PAG”), an Austrian stock corporation involved in emerging technologies in

the oil industry, including “cold cracking technology,” was formed in 2006. Defs. 56.1 ¶ 78.

PAG, like all Austrian stock corporations, has its corporate governance divided among three

bodies: the Management Board, which runs the day-to-day operations and is authorized to

represent and bind the corporation legally, id. ¶¶ 14–15; the Supervisory Board, which “appoints,

removes and supervises” the Management Board, id. ¶18; and the Shareholders’ General

Meeting, which elects the Supervisory Board and decides whether to make a distribution of the

corporation’s net profits or to retain them, id. ¶¶ 16, 23. Laura and Sichenzio became members

of PAG’s Supervisory Board on September 19, 2013, soon after which Laura was appointed its

Chairman. Id. ¶¶ 38–39.

3

C. ICT

Innovative Crude Technologies, Inc. (“ICT”) is a New Jersey corporation established by

Laura in 20102 and owned by Laura and Sichenzio in equal share from at least January 2014

through at least April 7, 2020. Defs. 56.1 ¶ 48. Laura was the Chairman and President of ICT.

Id. ¶ 73. ICT acquired a 50% interest in PAG in 2010, id. ¶ 51, which was diluted to 33% in

2011, id. ¶ 52, and 23.33% by 2016, id. ¶ 53.

D. The PAI Companies

Laura, acting as President and Chairman of ICT, established two corporations, each

named Pristec America, Inc. (collectively, the “PAI Companies”)—one in New Jersey (“PAI-

NJ”) in 2011, Defs. 56.1 ¶¶ 55, 57, and one in Nevada (“PAI-NV”) in 2013, id. ¶ 56. The PAI

Companies were each owned 50/50 by PAG and ICT. Id. ¶¶ 55, 56. Laura was the PAI

Companies’ Chairman and/or President, id. ¶ 73, and Sichenzio held various roles including Vice

Chairman, Vice President, Secretary, and Director, id. ¶ 75. ICT, PAI-NJ, and PAI-NV only had

one other employee besides Laura and Sichenzio, an individual who performed “driver services”

and “computer/office support.” Id. ¶ 60. None of the companies ever had separate office space,

and all three used Laura’s home address as their business address. Id. ¶ 65.

II. Timeline

Laura was first introduced to PAG sometime around December 2008, Defs. 56.1 ¶ 77,

when he was presented a business plan by an individual associated with PAG regarding “cold

cracking technology,” something Laura “didn’t really know much” about, id. ¶ 79. The

2 ICT was originally named Pristec America, Inc., but the name was changed in October

2010. Id. ¶ 44.

4

individual claimed that with “cold cracking technology,” PAG could convert heavy oil into light

oil.3 Id. ¶ 78. Laura understood that PAG had been trying to market this technology since the

company was formed in 2006. Id. ¶ 80. Sometime around May 2010, Defendants agreed that

Sichenzio would forgive Laura’s debt in exchange for Laura splitting his interest in, and income

received from, ICT.4 Id. ¶¶ 150–51.

PAG had only entered into one contract before 2010—a “pilot test” with an Indian

company. Id. ¶ 86. Laura knew that the Indian contract was explicit that there would be no

commercial aspect to the arrangement until the technology was proven. Id. ¶¶ 87–88. PAG

never entered into a commercial contract with the Indian company. Id. ¶ 92. PAG (but not ICT

or the PAI Companies) did have a contract with an Egyptian company for a “pilot project” from

2010 to 2011, but PAG was never able to monetize that project. ECF No. 159 at 5 n.2 (Laura

Decl.).

On June 30, 2010, ICT and PAG entered into a written “Financing Contract,”5 which

Laura signed, whereby ICT agreed to loan PAG $1.4 million in the form of a convertible bond.

Id. ¶ 144. By December 15, 2010, if PAG had not paid back the principal, plus 20% interest,

3 Light crude oil is considered more valuable than heavy crude oil because it produces a

higher percentage of gasoline and diesel fuel when refined. See Oil and petroleum products

explained, U.S. ENERGY INFORMATION ADMINISTRATION, https://perma.cc/886S-JTUR (last

accessed June 28, 2023). See also Defs. 56.1 ¶ 81.

4 ICT, at the time, was still called Pristec America, Inc. Defs. 56.1 ¶ 44.

5 The 2010 Financing Contract included, inter alia, the following provision: “ICT and

PRISTEC intend a long term partnership and cooperation in marketing and operating PRISTEC

heavy oil technologies in the North America region.” ECF No. 150-17 (“2010 Financing

Contract”) at 1: § 1.

5

ICT had the option to convert the loan into 35,000 shares of PAG. Id. Laura was aware that

PAG needed the money to pay off debts, and that if it did not, it could go bankrupt. Id. ¶¶ 139–

40.6 Sichenzio put up a “substantial” portion of the money sent to PAG, id. ¶ 160, and the rest

“mostly” came from Sichenzio’s friends and family, id. ¶ 161. Laura testified that the

expectation was that “ [PAG] knew that they were not going to pay us back and that we would

get the shares.” Id. ¶ 146.7

Laura was also aware, at least by August 2010, that there were patent applications filed

with the U.S. Patent Office on May 14, 2010, for the “cold cracking technology,” but (i) the

patents were in the names of the four identified applicants and inventors,8 not PAG, and (ii) that

those patents had not yet been granted. Id. ¶ 97. Laura was also aware of an agreement, dated

March 2010, for PAG to acquire the cold cracking patents—if and when the patents were

granted—in exchange for a 30% ownership stake in PAG. Id. ¶¶ 129–32. The same agreement

also stated that “the transfer of patent ownership and rights will become effective only upon

issuance of shares in [PAG] equaling a 30 percent interest in [PAG], only upon approval by the

6 A sample 2010 Financing Contract between Defendants and investors provided by the

SEC states: “ICT is aware of the critical financial situation that PRISTEC is currently in and

intends to support PRISTEC in order to secure the joint mid and long term business perspectives

in the region . . . . In July and August 2010 PRISTEC is in need of EUR 500.000 in order to pay

open accounts and to avoid insolvency proceedings and PRISTEC plans to raise these funds with

existing small shareholders.” 2010 Financing Contract at 1: § 1, 2: § 1.

7 ICT did exercise its option and converted the loan into 35,000 shares of PAG after PAG

did not pay back the loan by December 2010. Defs. 56.1 ¶ 147. This gave ICT a 50% stake in

PAG. Id. ¶ 51.

8 The inventors include: Rudiger Nuerk; Miguel Delgado Castillo; Fedor Chernikov; and

Anibal Veneciano Rivera (the “Inventors”). Defs. 56.1 ¶ 128

6

shareholders of [PAG] at a general meeting. In the event the shareholders of [PAG] do not

approve the issuance of the shares to the Inventors at the general meeting, then all patents and

patent rights revert back to the inventors.” Id. ¶ 132. PAG did not exercise its option to acquire

the patents until sometime between 2013 and 2015.9 Id. ¶¶ 135–37. Neither of the PAI

Companies had a written agreement providing it with a license to the cold cracking technology

until, at the earliest, October 2013, when the PAI Companies were granted an exclusive license

for the cold cracking technology in the United States, Mexico, Canada, and Venezuela and a

nonexclusive license anywhere else. Id. ¶ 137

III. The Investor Agreements

Sometime in the fall of 2010, a few months after the signing of the 2010 Finance

Agreement, Laura and Sichenzio began soliciting funds for ICT and PAI10 from various

individuals through investor agreements—specifically “revenue share agreements, stock

purchase agreements, convertible loan agreements, and several loan agreements and promissory

notes.” Defs. 56.1 ¶ 291. This continued until at least January 2017. Id.

All of the revenue share, convertible loan and share purchase agreements were drafted

and signed by Laura, id. ¶¶ 294, 295; Sichenzio, as an officer of the PAI Companies, signed

some of the agreements, id. ¶ 296. Various investor agreements, including certain revenue share

and convertible loan agreements, contained a clause that stated that one of the PAI Companies

9 The exact date is disputed by the parties. Compare Pl. 56.1 ¶¶ 135–37, with Defs. 56.1

¶¶ 135–37.

10 Defendants did not solicit funds for investments in PAG.

7

either “developed and owns” or “owns exclusive global rights to” “certain ‘TECHNOLOGY’11

for heavy oil upgrading and refining including intellectual property rights, knowledge and

facilities for cold cracking and reforming, visbreaking and desulphurization.” Id. ¶¶ 306, 307,

321, 322.

The revenue share agreements also typically stated that one of the PAI Companies “is in

need of financing in the amount of [amounts varied by investor] for funding of the international

roll-out of its patented technology,” or “WHEREAS, PRISTEC is in need of financing for

working capital for funding of the international roll-out of its patented technology.” Id. ¶ 309.

Some of the revenue share agreements contained an anticipated production date that ranged from

six to eleven months after the date of the contract. Id. ¶ 310; see also ECF No. 151 at 16. Some

investor agreements noted that the funds given by investors would help with the “installation of

its patented ‘hydrogen’ cold cracking units” at a pilot program in Egypt.12 Id. ¶ 224. Other

agreements further stated that revenue payments would be paid monthly within ten days after the

conclusion of a production month. Defs. 56.1 ¶ 310. At least some of the agreements contained

a schedule of payments indicating that production would escalate from either 10,000 or 20,000

barrels per day (“bpd”) in the first month to 200,000 bpd by the twelfth month. Id. ¶ 314.

11 Laura testified that the term “TECHNOLOGY” in these agreements refers to the cold

cracking technology. Defs. 56.1 ¶ 308.

12 This pilot program was between an Egyptian company and PAG. Defs. 56.1 ¶ 227.

Defendants hoped that the project would prove that the technology was commercially viable.

See id. ¶ 163 (Laura stated that “initially we were going to launch in Egypt and . . . grow the

business from there . . . . [I]t was always once we were proven commercially someplace,

everything would fall into place.”). Neither ICT nor the PAI Companies had a contract with the

Egyptian government or the company in Egypt piloting the technology. Id. ¶ 227.

8

Defendants also solicited funds by way of convertible loan agreements and share

purchase agreements. Id. ¶¶ 317, 330. Some of the convertible loan agreements provided for a

one-year loan with interest rates between 10% and 18%, payable at the end of the year, as well as

an option for the investor to convert the loan into equity in whichever of the PAI Companies they

were investing in. Id. ¶ 318. The share purchase agreements offered investors shares in different

entities (e.g., one of the two PAI Companies, or ICT). Id. ¶ 330. At least one share purchase

agreement offered investors shares in a soon-to-be-formed entity. Id. ¶ 331. All the convertible

loan agreements and share purchase agreements were signed by Laura, and some were also

signed by Sichenzio. Id. ¶ 325. None of the investor agreements contained cautionary language.

Id. ¶ 333.13

IV. Money Raised by Laura and Sichenzio

Much of the money Laura and Sichenzio raised from investors was deposited into bank

accounts for PAI (“PAI Accounts”), or ICT (“ICT Accounts”), or an account at Laura &

Matarrese, the law firm where Laura was a partner at the time (collectively, the “Accounts”).

Defs. 56.1 ¶¶ 364–66, 410. Except for one PAI Account, where Sichenzio was also a signatory,

there were no authorized signatories on the Accounts except for Laura, who was also the only

debit card holder on the PAI and ICT Accounts. Id. ¶¶ 384, 385. Some checks from investors

were made payable directly to Sichenzio. Id. ¶ 368.

Laura and Sichenzio both transferred millions of dollars in funds from the Accounts to

their own individual personal accounts. For example, $65,000 from a $100,000 investment,

13 In addition, a four-page statement of “Risk Factors” was reviewed and approved by Laura

in August of 2013, but never shared with investors. Defs. 56.1 ¶¶ 338–39

9

initially deposited into a PAI Account, was transferred to Laura’s and Sichenzio’s personal

accounts less than a week after the money was deposited. Defs. 56.1 ¶¶ 394–97. Money

transferred to Sichenzio was “put to personal use.” Id. ¶ 370. Laura used some of the funds for,

among other things: purchases at a furniture store, id. ¶ 406; a sporting goods store, id. ¶ 411;

Neiman Marcus, id.; and Costco, id. ¶ 419; as well as making a car payment, id. ¶ 411; and

paying for landscaping, id. According to Sichenzio, Laura used funds raised through investors to

support himself. ECF No. 150-6 (Sichenzio Dep.) at 211:10-20.

V. PAG’s Bankruptcy

PAG was dissolved in 2021 and the company’s assets, including the patents for the “cold

cracking technology,” were sold by the bankruptcy administrator. Defs. 56.1 ¶¶ 429, 430.

PAG’s shareholders and creditors were “wiped out” by the bankruptcy. Id. ¶¶ 432–33.

PROCEDURAL HISTORY

The SEC initiated this action on September 7, 2018. ECF No. 1. Defendants filed their

Answer in April 2020 after the Court denied their motion to dismiss. ECF No. 77. On

December 3, 2021, the parties filed a joint letter certifying discovery had been completed. ECF

No. 135.

Both Plaintiff and Defendants sought summary judgment, and Defendants also sought to

strike expert testimony. ECF Nos. 136–38. The parties filed their fully briefed motions,

including their Rule 56.1 statements, on May 27, 2022.14

14 See ECF Nos. 145, 146, 148–50 (Plaintiff’s motion for summary judgment and

declarations in support); ECF No. 147 (Pl. 56.1); ECF Nos. 151, 153–55 (Defs. opposition to

Pl’s motion for summary judgment); ECF No. 152 (Defs. 56.1); ECF Nos. 156–59 (Defs. motion

for partial summary judgment and to strike expert testimony, and declarations in support); ECF

10

EXPERT TESTIMONY DISCUSSION

The Court will first address Defendants’ motion to strike expert testimony before ruling

on the summary judgment motions.

Federal Rule of Evidence 702 governs the admission of expert testimony. Fed. R. Evid.

702. Rule 702 allows the testimony of “[a] witness who is qualified as an expert by knowledge,

skill, experience, training, or education” where: “(a) the expert’s scientific, technical, or other

specialized knowledge will help the trier of fact to understand the evidence or to determine a fact

in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of

reliable principles and methods; and (d) the expert has reliably applied the principles and

methods to the facts of the case.” Id. “A party seeking to admit expert testimony under Rule

702 must establish admissibility by a preponderance of the evidence under a liberal standard for

admissibility.” Sokolovic v. CVS Health, No. 17-cv-6609, 2023 WL 2742148, at *5 (E.D.N.Y.

Mar. 31, 2023).15

“When parties seek to introduce expert testimony in accordance with Rule 702 of the

Federal Rules of Evidence, the trial judge has the task of ensuring that an expert’s testimony both

rests on a reliable foundation and is relevant to the task at hand.” United States v. Willis, 14

F.4th 170, 185 (2d Cir. 2021); see also Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579

Nos. 160–62 (Pl’s opposition to Defs’ motion for summary judgment and to strike expert

testimony, and declarations in support); ECF No. 163 (Defs’ reply in support of their motion for

partial summary judgment and to strike expert testimony); ECF No. 164 (Pl’s reply in support of

its motion for summary judgment).

15 Unless noted, case law quotations in this Order accept all alterations and omit all internal

quotation marks, citations, and footnotes.

11

(1993). “The district court must analyze whether the proffered expert testimony is relevant and

whether the proffered testimony has a sufficiently reliable foundation to permit it to be

considered.” Willis, 14 F.4th at 185. To do this, a district court examines: “(1) that the

testimony is grounded on sufficient facts or data; (2) that the testimony is the product of reliable

principles and methods; and (3) that the witness has applied the principles and methods reliably

to the facts of the case.” Sokolovic, 2023 WL 2742148, at *5. “[O]nly serious flaws in

reasoning or methodology will warrant exclusion.” Id.

Expert testimony must also be relevant. “Whether expert testimony is relevant is

governed by the same test as any other evidence—Rule 401.” Better Holdco, Inc. v. Beeline

Loans, Inc., No. 20-cv-8686, 2023 WL 2711417, at *19 (S.D.N.Y. Mar. 30, 2023). “Under that

rule, [e]vidence is relevant if: (a) it has any tendency to make a fact more or less probable than it

would be without the evidence; and (b) the fact is of consequence in determining the action.” Id.

I. Lesa Adair

The SEC retained Lesa Adair as an “oil and gas expert.” ECF No. 151 at 4. For their

part, Defendants also recognize Adair as “an engineer with oil and gas experience.” ECF No.

157 at 4. The Court agrees that Adair’s decades of experience in the oil and gas industry qualify

her as an expert in the field. See ECF No. 150-12 at 60–68 (Adair Report). Adair opines on: the

difficulties of establishing new technologies in the oil and gas industry; the testing that “industry

standards and practice” typically require of a new technology; the data typically required “to

demonstrate reliable, repeatable, and stable output from the technology” in order to prove the

technology can achieve “wide-scale commercialization”; Defendants’ lack of “industry

experience”; and the risks, including geopolitical risks, typically involved in international oil

12

processing and refining. Id. at 2–4. Given that a key issue in this case turns on whether

Defendants made material misrepresentations to investors regarding the commercial viability of

the cold cracking technology, the Court finds that Adair’s proffered testimony is both relevant

and helpful to the trier of fact. Amorgianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256, 265 (2d

Cir. 2002).

Defendants contend that Adair was not given sufficient information on which to base her

opinion. ECF No. 157 at 4 (“The SEC gave Adair just a few documents (14 to be precise) of the

nearly half a million pages of documents exchanged in discovery.”). First, Defendants are

simply incorrect regarding the volume of documents reviewed by Adair—her report makes clear

that she reviewed 148 documents, not 14. ECF No. 150-12 at 74–76. Next, Defendants contend

that Adair is rendering engineering opinions she is not retained to give. ECF No. 157 at 4, 18.

The Court does not find that Adair provides any engineering opinions—nowhere in her report

does she assess the technological viability of the “cold cracking” technology from the

perspective of an engineer. Rather, Adair’s report explains what type of information is typically

given to demonstrate that a technology is commercially viable from the perspective of a

customer (i.e., a company that would buy the technology) in the oil and gas industry.16 Adair

does say that the lack of sufficient information regarding the technology would have been a red

flag for a potential customer. ECF No. 150-12 at 21, 32, 45. The Court does not understand that

to be an opinion regarding the viability of the technology—rather, it is simply an opinion that a

16 In fact, Adair makes clear that she does not have enough information to determine the

viability of the technology. ECF No. 150-12 at 5.

13

customer in the oil and gas industry would be unlikely to purchase the technology based on the

data Defendants provided.

Defendants further contend that Adair is not qualified to render engineering or marketing

opinions. ECF No. 157 at 19–20. However, the Court does not find that Adair makes any

“marketing” opinions. Rather, she provides an assessment, based on decades of industry

experience, of what type of information a customer in the oil and gas industry would likely need

to see to purchase the cold cracking technology at the center of this case.

Accordingly, Defendants’ motion to exclude the testimony of Adair is denied.17

II. Michael LaBrie

The SEC retained Michael LaBrie as an expert on patent law. Pl. 56.1 ¶ 98 n.6.

Defendants do not dispute that LaBrie is qualified to offer an expert opinion on general patent

law or the U.S. Patent and Trade Office (“USPTO”), and the Court finds that LaBrie—a

practicing patent attorney for almost 30 years—is qualified to render an opinion in this area. See

ECF No. 150-11 at 2–3 (LaBrie Report). LaBrie opines about the patent application process, and

the patent application histories of PAG and ICT (including what patents have been rejected,

granted, or abandoned). Id. at 3–4. Given that a key issue in this case turns on whether

Defendants made material misrepresentations to investors about the existence of “patented

17 To the extent Defendants raise other issues with Adair’s testimony, the Court finds that

those issues are either irrelevant to the admissibility of Adair’s testimony (e.g. that other

individuals witnessed the technology and found it sufficiently impressive to invest money), ECF

No. 157 at 5–8, or that those issues go to the weight of her testimony, but not its admissibility

(e.g., that company inventor and founder Miguel Delgado Castillo disagrees with portions of her

report), id. at 5.

14

technology,” the Court finds that LaBrie’s testimony regarding the existence of said patents is

both relevant and helpful to the trier of fact. Amorgianos, 303 F.3d at 265.

Defendants contend that LaBrie is not qualified to offer expert opinions on Austrian

patent law. ECF No. 157 at 21. However, from a review of his report, the Court does not find

that LaBrie is offering an expert opinion on Austrian patent law. While he does identify that

some patents “were first granted in Austria,” he provides no opinion on Austrian law. ECF No.

150-11 at 3. The ability to identify publicly filed patents, even patents first granted outside the

United States, is something well within the expertise of any patent law expert. Defendants

further contend that LaBrie was not given sufficient information to evaluate the patents or their

viability. ECF No. 157 at 19. Defendants, however, do not identify what information LaBrie

was missing. In any event, the Court does not find that LaBrie evaluates the patents

themselves—he does not, for example, review them in the way the USPTO would, nor does he

assess the viability of the underlying technology. At most, LaBrie opines that if any pending or

future ICT patents rely on the same technology as the ICT or PAG patents that were previously

rejected by the USPTO, then it is unlikely they would be approved. ECF No. 150-11 at 3 (“The

rejections of the ICT patent applications also call into question the validity of the [PAG] patents

and the efficacy of the underlying technology to the extent that the PAG patents rely upon the

same underlying technology as the ICT patents.”) (emphasis added). The Court finds that

LaBrie’s opinion that the USPTO is likely to make a similar decision if confronted with a similar

application is something well within his expertise as a patent law expert.

Defendants further contend that LaBrie is not qualified to render engineering or

marketing opinions. ECF No. 157 at 18–21. However, Defendants do not identify what

15

engineering or marketing opinions LaBrie is making, and the Court cannot identify any. Rather

LaBrie’s report is concerned with patent law and procedure, how patents are examined by patent

offices, and the history of PAG’s and ICT’s patent applications. ECF No. 150-11 at 2–4.

Accordingly, Defendants’ motion to exclude the testimony of LaBrie is denied. 18

III. Farid Sigari-Majd

The SEC retained Farid Sigari-Majd as an expert on Austrian law. Pl. 56.1 ¶ 12 n.4.

Defendants do not contend that Sigari-Majd is unqualified to offer an expert opinion on Austrian

law, and the Court finds that Sigari-Majd—an Austrian attorney with 20 years of experience

advising on Austrian corporate law issues, ECF No. 150-8 at 4 (Sigari-Majd Report)—is

qualified in this area. Sigari-Majd opines that: PAG may only be legally bound by its

Management Board or individuals legally authorized by power of attorney to bind PAG, and that

PAG could not be liable for agreements entered into by ICT, id. at 5–6; that neither Defendant

was ever a member of PAG’s Management Board or authorized by power of attorney, id.; that

PAG could only distribute profits to shareholders, and thus could not have legally distributed

profits to PAI-NJ or PAI-NV, id.; that PAG failed to comply with its Austrian legal obligation to

file financial statements in a timely manner, id.; and that PAG failed to re-appoint members of

the Management and Supervisory Boards in a timely manner, making it unable to make legally

enforceable decisions given the absence of a proper composition and quorum as of March 2018,

18 To the extent Defendants raise other issues with LaBrie’s testimony, the Court finds that

those issues are either irrelevant to the admissibility of LaBrie’s testimony (e.g., the possible

outcomes of ongoing legal disputes between Defendants and nonparties), ECF No. 157 at 11–12,

or that those issues go to the weight of his testimony but not its admissibility (e.g., that company

inventor and founder Castillo disagrees with portions of his report), id. at 13.

16

id. at 5–6. Given that a key issue in this case turns on whether Defendants made material

misrepresentations to investors about the relationship between themselves and PAG, the Court

finds that Sigari-Majd’s testimony on what PAG was legally allowed or required to do under

Austrian law is both relevant and helpful to the trier of fact. Amorgianos, 303 F.3d at 265.

Defendants argue that “Sigari-Majd was given cherry-picked documents.” ECF No. 157

at 14–15. Sigari-Majd notes that he considered 144 documents related to this case. ECF No.

150-8 at 37–40. Defendants do not explain what vital documents he missed, or how the 144

documents were “cherry picked.” Defendants then contend that they legitimately believed “they

were PAG supervisory board members” and Nuerk—one of the inventors of the technology—

“was authorized to act on behalf of PAG and could commit PAG to paying the U.S. investors.”

ECF No. 157 at 15. First, Sigari-Majd does not opine on Defendants’ state of mind, only what

he believes is appropriate under Austrian law, and thus this criticism is irrelevant. Second, even

assuming that any of Defendants’ objections are valid, their criticism goes only to the weight of

Sigari-Majd’s opinion, not its admissibility. See Sokolovic, 2023 WL 2742148, at *9 (noting that

attacks on the factual basis of an expert’s opinions go to the weight of the testimony, not its

admissibility).

Accordingly, Defendants’ motion to exclude the testimony of Sigari-Majd is denied.

SUMMARY JUDGMENT LEGAL STANDARD

“The court shall grant summary judgment if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.

R. Civ. P. 56(a). Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits . . . show that there is no

17

genuine issue as to any material fact and that the moving party is entitled to a judgment as a

matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The moving party

has the burden of demonstrating that there is no genuine issue of material fact. Celotex Corp. v.

Catrett, 477 U.S. 317, 323 (1986). “Where the moving party demonstrates the absence of a

genuine issue of material fact, the opposing party must come forward with specific evidence

demonstrating the existence of a genuine dispute of material fact.” Brown v. Eli Lilly & Co., 654

F.3d 347, 358 (2d Cir. 2011).

In deciding a summary judgment motion, any ambiguities and inferences drawn from the

facts must be viewed in the light most favorable to the nonmoving party. LaFond v. Gen.

Physics Servs. Corp., 50 F.3d 165, 171 (2d Cir. 1995). In reviewing the evidence and inferences

that may reasonably be drawn, the Court “may not make credibility determinations or weigh the

evidence . . . . Credibility determinations . . . [are a] jury function[ ], not [that] of a judge.”

Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000). Nevertheless, “[t]he mere

existence of a scintilla of evidence in support of the [non-movant’s] position will be insufficient;

there must be evidence on which the jury could reasonably find for the [non-movant].”

Anderson, 477 U.S. at 252.

SUMMARY JUDGMENT DISCUSSION

The SEC brings claims against Laura under both “misstatement” and “scheme” theories

of liability. The SEC also alleges that Laura acted as an unregistered broker. It brings claims

against Sichenzio under both “aiding and abetting” and “scheme” theories of liability.

Specifically, claim one alleges that Laura violated Sections 17(a)(1), (2), and (3) of the

Securities Act in, Compl. ¶¶ 104–07; claim two alleges that Laura violated Section 10(b) of the

18

Exchange Act and Rule 10b-5(a), (c) thereunder, id. ¶¶ 107–09; and claim seven alleges that

Laura violated Section 15(a)(1) of the Exchange Act, id. ¶¶ 122–24. Claim three of the

Complaint alleges that Sichenzio violated Sections 17(a)(1) and (3), id. ¶¶ 110–12; claim four

alleges that he violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, id. ¶¶

113–15; claim five alleges that he aided and abetted Laura’s material misrepresentations in

violation of Section 17(a)(2), id. ¶¶ 116–18; and claim six alleges that he aided and abetted

Laura’s misrepresentations in violation of Section 10(b) of the Exchange Act and Rule 10b-5(b)

thereunder, id. ¶¶ 119–21.

I. Laura—Misstatement Liability

Claims one and two of the complaint include allegations that Laura is liable under a

“misstatement liability” theory in violation of Section 17(a)(2) of the Securities Act and Rule

10b-5(b) of Section 10(b) of the Exchange Act, respectively.

In order to show that a defendant is subject to misstatement liability under Section 10(b)

and Rule 10b-5, the SEC must show “that [a] defendant: (1) made a material misrepresentation

or a material omission as to which he had a duty to speak . . . ; (2) with scienter; (3) in

connection with the purchase or sale of securities.” SEC v. Xia, No. 21-cv-5350, 2022 WL

17539124, at *18 (E.D.N.Y. Dec. 8, 2022); see also SEC v. Spark Trading Grp., LLC, No. 18-cv-

1498, 2018 WL 6727349, at *2 (E.D.N.Y. Dec. 21, 2018); see also SEC v. CKB168 Holdings,

Ltd., 210 F. Supp. 3d 421, 441 (E.D.N.Y. 2016).

For the first element, a material omission or misstatement is one which “would have been

viewed by the reasonable investor as having significantly altered the total mix of information

available.” Wang v. Cloopen Grp. Holding Ltd., No. 21-cv-10610, 2023 WL 2534599, at *8

19

(S.D.N.Y. Mar. 16, 2023). “Only if an omission or misstatement is so obviously important or

unimportant to a reasonable investor that reasonable minds cannot differ on the question of

materiality is the issue appropriately resolved as a matter of law by summary judgment.” SEC v.

Jankovic, No. 15-cv-1248, 2017 WL 1067788, at *10 (S.D.N.Y. Mar. 21, 2017).

For Plaintiff’s claims under Section 10(b) of the Exchange Act, the second element,

scienter, is defined as “intent to deceive, manipulate or defraud or knowing or intentional

misconduct.” SEC v. Rosenberger, No. 22-cv-4736, 2023 WL 1928093, at *5 (S.D.N.Y. Feb.

10, 2023); see also SEC v. Obus, 693 F.3d 276, 286 (2d Cir. 2012). “The requisite scienter may

be established through a showing of reckless disregard for the truth, that is, conduct which is

highly unreasonable and which represents an extreme departure from the standards of ordinary

care.” Rosenberger, 2023 WL 1928093, at *5. “Proof of scienter need not be direct, but may be

a matter of inference from circumstantial evidence.” Id. A court may infer recklessness at the

summary judgment stage if it finds that a defendant exhibited an “egregious refusal to see the

obvious, or to investigate the doubtful.” SEC v. Yorkville Advisors, LLC, 305 F. Supp. 3d 486,

511 (S.D.N.Y. 2018).

Regarding the third element, a “security” is defined by the Securities Act Section 2(a)(1)

and Exchange Act Section 3(a)(10) to include an “investment contract.” An investment contract

is “an investment of money in a common enterprise, with a reasonable expectation of profits to

be derived from the efforts of others.” Spark, 2018 WL 6727349, at *2 (quoting SEC v. W.J.

Howey, 328 U.S. 293, 299 (1946)). The “in connection with” requirement of the third element is

satisfied if the fraud and the sale of the securities coincide. Xia, 2022 WL 17539124, at *26; see

SEC v. Zandford, 535 U.S. 813, 822 (2002).

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Plaintiff’s claims under Section 17(a)(2) of the Securities Act are essentially the same as

those under Section 10(b) of the Exchange Act, except that a “showing of negligence is

sufficient” to satisfy the second element. SEC v. Ginder, 752 F.3d 569, 574 (2d Cir. 2014); see

also CKB168, 210 F. Supp. 3d at 441; Aaron v. SEC, 446 U.S. 680, 695–696 (1980).

A. The Investor Agreements Are Securities

As a threshold matter, the Court finds that the investor agreements solicited by Laura and

Sichenzio for PAI and ICT are “securities.” Nowhere in Defendants’ opposition do they argue

that the investor agreements are not securities. See ECF No. 151 at 8 (Defendants’ opposition).

The share purchase agreements offered “stock” in exchange for an investment; the revenue share

agreements offered “profit-sharing” in exchange for an investment; and the convertible loan

agreements contained an “option” for investors to convert their loan into stock in exchange for

an investment. These various agreements, therefore, all qualify as securities under Securities Act

Section 2(a)(1) and Exchange Act Section 3(a)(10).

The Court further notes that all three types of investment agreements also meet the

Supreme Court’s Howey test for determining what is a security: Laura and Sichenzio solicited

an “investment of money” in a “common enterprise” (the cold cracking technology) that created

an “expectation of profit” (the increased value that would come from converting heavy oil into

light oil), based “on the efforts of others” (the inventors and others working to operationalize the

technology). Howey, 328 U.S. at 299; see also Xia, 2022 WL 17539124, at *19; CKB168, 210 F.

Supp. 3d at 450.

21

B. Laura Made Material Misstatements

1. Ownership of the Cold Cracking Technology

The Court finds that the SEC has demonstrated the absence of a genuine issue of material

fact that Laura made material misrepresentations in the investor agreements regarding the PAI

Companies’ ownership of the cold cracking technology. Neither of the PAI Companies ever

“developed and own[ed]” or “own[ed] exclusive rights to” the cold cracking technology, as was

claimed in the agreements. Defs. 56.1 ¶¶ 129, 306, 307, 321, 322. Yet, Defendants admit that

Laura repeatedly made such misrepresentations in the investor agreements—asking investors to

put up “working capital” for the “international roll-out of its patented technology” that the

companies did not, in fact, own. Id. ¶ 309, ECF No. 150-11 at 3–4. In reality, when Laura first

began soliciting investors, as Defendants concede—and the SEC’s patent expert has illustrated

by detailing exactly when the patent applications were first granted—the patents for the

technology did not yet exist.19 Defs. 56.1. ¶ 97; ECF No. 150-11 at 3.

Defendants argue that these representations were not false for two reasons: First, because

“ICT was in fact owned and controlled in the early years by the inventors and PAG,” who owned

the patents. ECF No. 151 at 23–24; Defs. 56.1 ¶ 48. However, there is a difference between (i) a

company owning a patent and (ii) a company being partially owned by individuals who also own

a patent. As the sample agreements provided by the SEC show, at least some of the investor

19 Defendants began soliciting funds from investors in 2010. Defs. 56.1 ¶ 149. One patent

application was granted in Austria on April 15, 2012, and the other was granted in the United

States on January 15, 2013. Id. ¶ 99.

22

agreements explicitly stated the former, id. ¶¶ 306, 307, 321, 322, when, in fact, it was the latter,

ECF No. 150-11 at 3. This was a material misstatement.

Defendants argue that this was not a misrepresentation pursuant to the “doctrine of

implied patent license rights.” ECF No. 151 at 24–25. Courts have recognized implied patents

in circumstances where an owner of a patent implicitly consents to a license. See Bobcar Media,

LLC v. Aardvark Event Logistics, Inc., 354 F. Supp. 3d 375, 383 (S.D.N.Y. 2018); My First

Shades v. Baby Blanket Suncare, 914 F. Supp. 2d 339, 349 (E.D.N.Y. 2012). “This rule includes

exclusive license[s].” My First Shades, 914 F. Supp. at 350. “[F]or the party to establish that it

was an implied exclusive licensee of the patents it must have received the patentee’s express or

implied promise that others shall be excluded from practicing the invention within that territory

as well.” Id.

First, even if the Court concluded that an implied license existed, the SEC has

demonstrated that investor agreements still falsely claimed that the PAI Companies owned the

patents themselves. ECF No. 150-11 at 3–5. Second, even when viewing the evidence in the

light most favorable to the nonmoving party, the Court does not find any evidence suggesting

that the PAI Companies owned an “exclusive global license.” Defs. 56.1 ¶¶ 306, 307, 321, 322.

As the SEC has correctly pointed out, before 2013, and possibly as late as 2015, PAG did not

own the patents—having only been given an option to buy them from the Inventors in the future

after they had been approved. Id. ¶¶ 129–37. PAG could not have implicitly promised an

exclusive global license for something it did not own. It was not until October 2013 that Laura

and the Inventors signed a contract granting an exclusive license in select countries, and a non-

exclusive license globally, to PAI-NV. Id. ¶¶ 265–69. Accordingly, there is no issue of material

23

fact about whether the PAI Companies owned an implied exclusive global license to the cold

cracking technology—they did not.

The fact that the PAI Companies did not own the technology or an exclusive global

license to the technology “significantly alter[s] the total mix of available information.” Spark,

2018 WL 6727349, at *2. Investors were told they were investing in a company that owned

something of value—patented technology that could turn heavy oil into much more valuable

light oil—and the PAI Companies needed their money as “working capital” to “roll out” the

technology. Defs. 56.1 ¶ 309. However, as the SEC has shown, the truth was that they were

investing in companies that, at most, owned a non-exclusive license to a technology that had

never had a commercial roll out. ECF No. 150-12 at 2–4. The Court finds these

misrepresentations and omissions are “so obviously important to an investor” that they are

material misrepresentations as a matter of law. Jankovic, 2017 WL 1067788, at *10; see, e.g.,

SEC v. Glob. Telecom Servs., LLC, 325 F. Supp. 2d 94 (D. Conn. 2004) (holding that

defendants’ representation that they owned patent rights was a material misrepresentation and

granting summary judgment in favor of the SEC); SEC v. Research Automation Corp., 585 F.2d

31, 34–36 (2d Cir. 1978) (holding that false representation regarding patent rights was material).

2. Revenue Share Agreements

The Court further finds that the SEC has demonstrated that there is no genuine issue of

material fact that Laura made material misrepresentations regarding the source of revenue related

to the revenue share agreements. In more than 100 revenue share agreements, Laura promised to

pay investors “a return on their investment based on certain specified fractional pennies per

barrel of oil processed using the cold cracking technology.” Defs. 56.1 ¶ 299. It is undisputed

24

that the PAI Companies never entered into any commercial contracts to process oil that would

have generated revenue, nor is there any evidence they were in the process of doing so. Id. ¶¶

290, 326 (noting that any revenue from the PAI Companies came from licensing, not commercial

contracts). Rather, investors who entered into a revenue share agreement were investing money

in the PAI Companies in order to receive revenue that a different company, PAG, would make

through commercial contracts with third parties. Id. ¶ 299. As the SEC has shown, that critical

fact was not disclosed in the revenue share agreements. See, e.g., ECF 150-26 (sample revenue

share agreement).

First, even if PAG had intended to share a portion of its oil processing revenue, the fact

that the revenue share agreements promised an investment in the PAI Companies in exchange for

revenue from a totally separate, foreign company is in itself a material omission. Without that

information investors would not be aware of the full extent of the risks they were incurring. For

example, as the SEC’s expert in Austrian commercial law has illustrated, an Austrian company,

such as PAG, is not legally allowed to share such revenue with non-shareholders. ECF No. 150-

8 at 5–6. Second, there is no evidence that PAG was ever obligated to share any of this future

revenue with the PAI Companies. PAG’s Shareholders’ General Meeting is the only body

authorized to make revenue sharing decisions under Austrian corporate law, Defs. 56.1 ¶¶ 16,

23; ECF No. 150-8 at 5–6, and there is no evidence it ever agreed to do so. For example, there is

no contract among PAG and ICT or the PAI Companies involving revenue sharing—the loan

agreement among those companies required PAG to either repay the loan or give ICT and the

PAI Companies an equity stake. Defs. 56.1 ¶ 144. That is not the same as agreeing to share

revenue. Thus, every revenue share agreement was promising something that Laura had no right

25

to promise. As with the patent ownership misstatements, the Court finds these

misrepresentations and omissions are “so obviously important to an investor” that they are

material misrepresentations as a matter of law. Jankovic, 2017 WL 1067788, at *10; see, e.g.,

SEC v. StratoComm Corp., 2 F. Supp. 3d 240, 248 (N.D.N.Y. 2014) (granting summary

judgment where defendants made false and misleading statements regarding the source and

existence of revenue), aff’d, SEC v. StratoComm Corp., 652 F. App’x 35 (2d Cir. 2016); SEC v.

Enters. Sols., Inc., 142 F. Supp. 2d 561, 577 (S.D.N.Y. 2001) (holding that statements regarding

sources of company’s revenue were materially misleading when company had no revenue).

3. Anticipated Production Date

The Court next finds that there is no genuine issue of material fact that Laura made

material misrepresentations regarding the anticipated production dates in the investor

agreements. The SEC has shown, and Defendants admit, that “some Investor Contracts . . .

referred to an ‘estimated production date’ or an ‘anticipated production date’ that ranged from

approximately six to ten or eleven months after the date of the Investor Contract.” ECF No. 151

at 16. The anticipated date of when the cold cracking technology would be operational is a

material piece of information since there can be no serious question that an investor would need

to know when to expect to see a return on the investment. See Spark, 2018 WL 6727349, at *2.

While the record shows that at least some investors were aware that they were investing

in “a start-up in a volatile and inherently risky industry,” ECF No. 151 at 17; ECF Nos. 153–55,

the Court finds no evidence in the record that those investors were aware that the cold cracking

technology had never been proven to be commercially viable, Defs. 56.1 ¶ 274. There had been

only one pilot project in India in 2008, which failed to lead to a commercial contract. Defs. 56.1

26

¶¶ 86–92. Over the next ten years, there were several more pilot contracts, including the one in

Egypt, none of which ever led to proof of commercial viability. Id. ¶¶ 251–57, 258–59, 274;

ECF No 150-12 at 3–4. And yet, Laura continued proposing “anticipated production date[s]” of

less than a year in the investor contracts. Defs. 56.1 ¶¶ 310, 314; ECF No. 151 at 16.

Thus, the omission of the fact that the technology had never been proven commercially

viable at the time of investment is material, in that it altered the “mix of available information”

that an investor would need to evaluate just how unrealistically optimistic those anticipated

production dates were. Spark, 2018 WL 6727349, at *2. Defendants contend that these

estimates were reasonable based on the information available to them at the time. ECF No. 151

at 17. However, the Court finds that it is a material misrepresentation to promise investors an

anticipated production date, particularly one so optimistic, on a technology that (unbeknownst to

investors) had never been shown to be commercially viable.

The Court further finds that Defendants’ misrepresentations and omissions are “so

obviously important to an investor” that the anticipated production dates in the investor contracts

were a material misrepresentation as a matter of law. Jankovic, 2017 WL 1067788, at *10; see,

e.g., CKB168, 210 F. Supp. 3d at 441 (granting summary judgment in favor of SEC where

defendants told investors that the company would soon go public even though there was no

evidence to suggest that it would); SEC v. Constatin, 939 F. Supp. 2d 288, 295, 306 (S.D.N.Y.

2013) (granting summary judgment in favor of SEC where defendants’ “rosy projections,

advising clients that they would be able to liquidate their investments many months before they

actually ended up being able to do so . . . and promising very high returns” were found to be

materially misleading statements); Lapin v. Goldman Sachs Group, Inc., 506 F. Supp. 2d 221,

27

239 (S.D.N.Y. 2006) (“optimistic statements may be actionable upon a showing that the

defendants did not . . . reasonably believe the positive opinions they touted”).

4. “Working Capital”

The Court, however, finds that there remains a genuine issue of material fact as to

whether or not Laura made misrepresentations regarding what constituted “working capital.”

The SEC argues that Laura’s representations that “the investors’ monies would be used ‘as

working capital for the international rollout of [the PAI Companies’] patented technology’” was

“undisputedly false because Laura and Sichenzio misappropriated 50% of the approximately $12

million Defendants . . . raised from investors.” ECF No. 146 at 26–27. Defendants do not

dispute that an undisclosed intent to misappropriate funds would establish scheme liability.

Rather, they argue that there are genuine issues of material fact as to whether: (i) they disclosed

their intent to use the funds for themselves, and (ii) whether their personal use of the funds

counts as misappropriation. ECF No. 151 at 18–19.

None of the investor agreements explicitly state that money would flow to Defendants’

personal accounts. However, they all do contain language stating that money would go to

“working capital.” Defendants respond that the “working capital” that investors put up included

salaries and expenses, and that any money that flowed to Laura was, in effect, either a loan, or

his salary. Id. Defendants cite to SEC. v. Empire Dev. Grp. LLC, where the court defined

“general working capital” as “including salaries.” 2008 WL 2276629, at *2 (S.D.N.Y. May 30,

2008); ECF No. 151 at 18–19. Defendants further argue that Sichenzio, who put up the vast

majority of the initial capital, was simply being appropriately repaid debts that he was owed by

the PAI Companies. Id. ¶ 368. Finally, Defendants argue that investors were aware that their

28

money could be used this way, a claim they back up with declarations from a handful of

investors. ECF Nos. 153–55. While the SEC insists that an investor would want explicitly to

know that his or her funds were not being used for personal use by the PAI Companies

leadership, they cite no authority for this proposition. Given that the PAI Companies were

clearly startups, the Court believes it is a genuine issue of material fact whether or not an

investor would assume that some of their funds would go to support the CEO of that startup.

Accordingly, construing the evidence in the light most favorable to the nonmoving party,

the Court is not willing to conclude at this stage that Laura made a material misrepresentation by

not stating explicitly that “working capital” could include money paid to himself or Sichenzio.

C. Scienter

While the Court finds that the undisputed facts of this case establish that Laura’s

misstatements and omissions regarding the ownership of the cold cracking technology, the

possibility of revenue sharing, and the anticipated production dates were material, when

construing the evidence in the light most favorable to the nonmoving party, it finds that there are

still genuine issues of material fact as to whether Laura had the requisite scienter when he made

those statements.

When it comes to the cold cracking technology, Laura was aware that the PAI Companies

did not own the patents he told investors they owned, and that they did not own an exclusive

license to the technology. Id. ¶¶ 135–37, 265–69. Laura even admits that he was aware of this

but did not disclose it because the investors “would not want to have an agreement with PAG, as

in the event there was a problem, they would have to go to Europe to sue.” ECF No. 150-3 at

127 (Laura deposition). However, even conceding those facts, Laura argues that his statements

29

regarding the ownership of the technology were not wrong because ICT and the PAI Companies

had “implied license rights.” ECF No. 151 at 23–24. The SEC contends that this argument is

“factually unsupported and legally meritless.” ECF No. 164 at 6. While that may be true, it does

not diminish that there is a genuine issue of fact as to whether Laura believed it was true and, if

so, whether he was reckless in holding that belief.

Laura further argues that the revenue share agreements were “grounded in good faith

belief,” ECF No. 151 at 7, in part because Defendants then legitimately believed “they were

PAG supervisory board members,” that revenue was to be shared due to the “overlapping

ownership” between ICT and PAG, Defs. 56.1 ¶¶ 14, 45, 143, and that Nuerk—one of the

Inventors— “was authorized to act on behalf of PAG and could commit PAG to paying the U.S.

investors.” ECF No. 157 at 15. The Court has already found Laura’s statement that revenue

would be shared between PAG and either ICT or the PAI Companies was a material

misstatement. There was never any agreement to share revenue with PAG. However, as PAG

never actually generated any revenue, Defs. 56.1 ¶ 274, it remains a genuine issue of fact

whether Laura believed that once PAG began generating revenue some of that revenue would

flow to PAI and ICT’s investors.

Finally, when it comes to the anticipated production dates in the revenue share

agreements, it is undisputed that, even though Laura never saw any of ICT or the PAI Companies

ever receive any revenue from processing oil, he continued promising investors anticipated

production dates of less than a year. Defs. 56.1 ¶¶ 274, 310–14. The SEC argues that such dates

were “baseless projections” that were “undisputedly intentionally or recklessly false.” ECF No.

164 at 13. While the Court finds that this is a close call, construing the evidence in the light most

30

favorable to the nonmoving party, the Court is not willing to conclude at this stage that Laura’s

misstatement regarding the anticipated production dates rose to the level of recklessness.

Because there are genuine disputes of material fact as to whether Laura’s misstatements

were made with scienter, the Court cannot enter summary judgment on the SEC’s claims against

Laura under Section 10(b) or Rule 10b-5(b).

However, the Court finds that Laura’s statements were indisputably negligent. See

Jankovic, 2017 WL 1067788, at *14 (“[C]ourts in this Circuit have not strayed far from a black-

letter, ‘reasonable person’ standard in defining ‘negligence’ under Section[s] 17(a)(2) and (3). . .

. Under these provisions, the definition of negligence is the failure to use reasonable care, which

is the degree of care that a reasonably careful person would use under like circumstances.”). It

was negligent for Laura to state that the PAI Companies “owned” cold cracking technology that

they never owned. It was negligent for Laura to promise investors that PAG would share

revenue when there was never any legal obligation to do so based on the promises of one of the

Inventors, or his misunderstanding of Austrian corporate law. It was negligent for Laura to

promise anticipated production dates of less than a year, particularly after he repeatedly saw

those deadlines pass without producing any refined oil. Because the undisputed facts of this case

also establish the other elements of Section 17(a)(2), the Court grants summary judgment in

favor of the SEC against Laura on these claims.

II. Laura—Liability as an Unregistered Broker

Claim 7 alleges that Laura failed to register properly as a broker in violation of Section

15(a)(1) of the Exchange Act.

31

“Section 15(a)(1) of the Exchange Act makes it unlawful for a broker ‘to make use of . . .

interstate commerce to effect any transactions in, or to induce or attempt to induce the purchases

or sale of, any security unless such broker is registered [with the SEC].’” CKB168, 210 F. Supp.

3d at 452. Courts use a six factor test when evaluating whether or not an individual is acting as a

broker: “1) is an employee of the issuer; 2) received commissions as opposed to a salary; 3) is

selling, or previously sold, the securities of other issuers; 4) is involved in negotiations between

the issuer and the investor; 5) makes valuations as to the merits of the investment or gives

advice; and 6) is an active rather than passive finder of investors.” Id. The SEC does not need to

establish that every factor applies to the Defendant for the Court to find that he acted as a broker,

but that some combination of the factors establishes that fact. See id.

Laura argues, using authority outside the Second Circuit, that the second factor should be

viewed as the most important. SEC v. Kramer, 778 F. Supp. 2d 1320, 1334 (M.D. Fla. 2011).

He claims that “there is no evidence, let alone an allegation, that Laura received a commission on

any of the sales at issue herein.” ECF No. 151 at 29. First, courts in the Second Circuit have not

held that the second factor is more important than any of the others. See CKB168, 210 F. Supp.

3d at 453 (noting that no factor is dispositive and the SEC only needs to prove some combination

of factors to establish that defendant acted as a broker). Second, while there was no formal

commission structure, Laura “relied upon funds raised through investors to support himself,”

Sichenzio Dep. at 211:10-20, and channeled some of the money from the investment contracts

directly into his own accounts. Although there was no formal commission structure, the fact that

Laura was living off the funds created an incentive structure where “the size of [his] purported

entitlement directly correlate[d] to the size and success of each investment,” similar to a

32

commission. Jobanputra v. Kim, No. 21-cv-7071, 2022 WL 4538201, at *9 (S.D.N.Y. Sept. 28,

2022) (noting that such a fee structure is a “hallmark of broker-dealer activity”).

Viewing the factors as a whole, the Court finds that the SEC has proven that there is no

genuine issue of material fact as to whether Laura was a broker: (i) Laura was President and

Chairman of the PAI Companies, which entered into the investor agreements, satisfying the first

factor; (ii) he was involved in the negotiations between the issuer and the investor when he

drafted the agreements, satisfying the fourth factor; (iii) he made valuations as to the merits of

the investments, in that he told investors he believed them to be a good investment, satisfying the

fifth factor; and (iv) he was an active, rather than passive finder of investors, satisfying the sixth

factor.20 While the Court believes there is some debate as to the second factor—whether Laura

received a commission—the weight of the other factors overwhelmingly supports the conclusion

that defendant was a broker as a matter of law. See, e.g., CKB168, 210 F. Supp. 3d at 452.

Accordingly the Court grants summary judgment in favor of the SEC on claim seven.

III. Laura & Sichenzio—Scheme Liability

Claims one, two, three, and four of the complaint also allege that both Defendants may be

held liable under a theory of “scheme liability.”

The “Exchange Act [Section] 10(b), Rule 10b-5(a) and (c), and Securities Act [Sections]

17(a)(1) and (3) create what courts have called scheme liability.” SEC v. Sason, 433 F. Supp. 3d

496, 508 (S.D.N.Y. 2020). Scheme liability requires showing that “[d]efendants . . . participated

in an illegitimate, sham or inherently deceptive transaction where [their] conduct or role ha[d]

20 The Court notes that, because there is no allegation that Laura ever previously sold

securities of other issuers, the third factor has not been satisfied.

33

the purpose and effect of creating a false appearance.” Id. To state a scheme liability claim

under Section 10(b) or Section 17(a)(1), the SEC must allege “that defendants: (1) committed a

deceptive or manipulative act; (2) in furtherance of the alleged scheme to defraud; (3) with

scienter.” Id. at 508–09.

To state a scheme liability claim under Section 17(a)(3) the SEC must allege essentially

the same elements as under Section 10(b), Rule 10b-5(a) and (c), and Securities Act § 17(a)(1),

except that only a showing of negligence is required to satisfy the requisite mental state. Scheme

liability under Section 17(a)(3) is broader than misstatement liability under Section 17(a)(2),

allowing the Court to look beyond specific statements made by Defendants, but is also harder to

prove: scheme liability, under all sections, requires that the SEC demonstrate that Defendants’

behavior went “beyond misstatements and omissions”; in other words, that they did “something

extra that makes a violation a scheme.” SEC v. Stubos, No. 22-cv-4674, 2022 WL 6776741, at

*15 (S.D.N.Y. Oct. 11, 2022) (emphasis added); see also SEC v. Rio Tinto plc, 41 F.4th 47, 49–

54 (2d Cir. 2022).

The SEC contends that the “something extra” that Defendants engaged in that makes the

violations a scheme was “[r]epresenting to investors that funds obtained in an offering are to be

used for one purpose and diverting them for another purpose.” ECF No. 146 at 32. In other

words, keeping the investor money for themselves, when the investors expected it to go towards

commercializing the cold cracking technology. It is well established that an undisclosed intent to

misappropriate funds is sufficient to establish scheme liability on a motion for summary

judgment. Commodity Futures Trading Comm’n v. McDonnell, 332 F. Supp. 3d 641, 720

(E.D.N.Y. 2018); SEC v. Zandford, 535 U.S. 813, 819–20 (2002).

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As noted above, the Court has already found that there are genuine issues of material fact

as to whether Laura deceptively misappropriated investor funds sufficient to establish

misrepresentation liability. See supra at 28–29. For those same reasons, the Court cannot find

Defendants deceptively misappropriated investor funds sufficient to establish scheme liability.

As the SEC has not shown that Defendants engaged in “something extra” beyond material

misrepresentations, the Court cannot grant summary judgment on the SEC’s scheme liability

claims against Defendants under Exchange Act Section 10(b) and Rule 10b-5 thereunder, or

Securities Act Sections 17(a)(1) and (3).

IV. Sichenzio—Aiding and Abetting Laura’s Misrepresentations

The SEC also contends that Sichenzio is liable for aiding and abetting Laura’s material

misrepresentations under the Securities Act Section 17(a)(2) (claim five) and Exchange Act

10(b) and Rule 10b-5(b) thereunder (claim six).

To hold a defendant liable as an aider and abettor in a civil enforcement action, the SEC

must plead and ultimately prove: “(1) the existence of a securities law violation by the primary

(as opposed to the aiding and abetting) party; (2) knowledge of this violation on the part of the

aider and abettor; and (3) substantial assistance by the aider and abettor in the achievement of the

primary violation.” SEC v. Ripple Labs, Inc., No. 20-cv-10832, 2022 WL 762966, at *6

(S.D.N.Y. Mar. 11, 2022). The elements are interrelated. Id. (“Courts cannot consider the three

requirements in isolation from one another because satisfaction of the knowledge requirement

will depend on the theory of primary liability, and there may be a nexus between the degree of

knowledge and the requirement that the alleged aider and abettor render substantial assistance.”).

“To establish knowledge, the SEC must show a defendant’s general awareness of his overall role

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in the primary violator’s illegal scheme.” Paulsen, 2020 WL 6263180, at *14. “The defendant

need not know all of the details of the crime . . . if the evidence shows that he joined the venture,

shared in it, and that his efforts contributed towards its success.” Id. “Notably, the SEC need not

demonstrate that the [defendants] were aware that [the violation] was illegal.” Ripple Labs, 2022

WL 762966, at *7 (emphasis in original). Still, to establish that a defendant had “knowledge” of

the violation requires a showing of something more than negligence, “[r]ather, the SEC must

show that the Individual Defendants knew, or recklessly disregarded, the facts that made [the

violation] illegal.” Id. “To establish substantial assistance, the SEC must offer evidence that a

defendant associated himself with the illegal venture, that he participated in it as something he

wished to bring about, and that he sought by his action to make it succeed.” Paulsen, 2020 WL

6263180, at *15. This requires the Defendant to “consciously assist the commission of the

specific crime in some active way.” Id.

First, because the Court has found there is a genuine issue of material fact as to whether

Laura recklessly or intentionally made material misstatements in violation of Section 10(b), the

Court cannot find Sichenzio liable for aiding and abetting Laura under that section. However,

the Court has found that Laura negligently made material misstatements in violation of Section

17(a)(2), and therefore the Court can analyze whether Sichenzio aided and abetted Laura’s

material misstatements under that section.21

21 In addition, because the Court found that there were genuine issues of material fact as to

whether Laura made material misrepresentations regarding what constituted “working capital” in

violation of Section 17(a)(2), it cannot find Sichenzio liable for aiding and abetting any of

Laura’s alleged misstatements regarding “working capital.”

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As an initial matter, the Court finds that Sichenzio substantially assisted Laura’s material

misstatements: As an officer of the PAI Companies, Sichenzio solicited investments in the PAI

Companies, and even signed some of the investor agreements. Defs. 56.1 ¶ 296. Sichenzio

brought in 12–13 investors, id. ¶ 171, and was often their only source of information (or

misinformation). Id. ¶ 172. Through these actions, Sichenzio “consciously assisted” the

primary violation—Laura’s material misstatements—in an “active way.” Paulson, 2020 WL

6263180, at *15; see, e.g., StratoComm, 2 F. Supp. 3d at 262 (granting summary judgement in

favor of SEC after finding defendant substantially assisted material misstatements when he

referred investors to materials that he knew contained material misstatements), aff’d, 652 F.

App’x 35 (2d Cir. 2016); SEC v. Syron, 934 F. Supp. 2d 609, 637 (S.D.N.Y. 2013) (signing

investor documents that defendants knew to be misleading indicates substantial assistance).

As it relates to Sichenzio’s knowledge of Laura’s material misstatements, the SEC argues

that “[a]t a minimum, Sichenzio admits he knew that it was Pristec AG, not the PAI Companies,

that would be seeking to enter into revenue-generating contracts.” ECF No. 146 at 31 n.19. The

Court agrees. Sichenzio indisputably had “knowledge” that Laura was making

misrepresentations to investors as to the revenue share agreements. Sichenzio has admitted he

knew that potential revenue from processing oil was coming from PAG, not the PAI Companies,

Defs. 56.1 ¶¶163–66 (“Sichenzio understood that, at this time, if a contract was entered into, it

would be between Pristec AG and the oil companies.”). Yet, Sichenzio signed some of the

revenue share agreements that omitted the source of this future revenue. Id. ¶ 296.

However, the Court finds that there are genuine issues of material fact as to whether

Sichenzio knew, or recklessly disregarded, Laura’s other material misstatements. There is no

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evidence that Sichenzio was aware that Laura’s statements regarding the cold cracking

technology were false. As it relates to the anticipated production date of processed oil included

in some of the investor contracts, Sichenzio has admitted he was aware of the challenges faced

by PAG’s early attempts to make the technology commercially viable, id. ¶¶ 163–66, and was

aware of the geopolitical risks, id. ¶ 178. However, Sichenzio also admitted that Laura had

“more information” on whether money was “going to come back based on investment contracts

based on barrels of oil produced,” id. ¶ 168, and, at least initially, “was not aware of the amount

of capital that would be required to commercial[ize] the technology,” id. ¶ 183. While it is a

close call, the Court cannot say based on this that Sichenzio knew, or recklessly disregarded, that

Laura’s statements regarding the “anticipated production date” were false.

The Court finds that the undisputed facts of this case establish that Sichenzio aided and

abetted Laura’s material misstatements relating to the revenue share agreements under Section

17(a)(2), however, there remain genuine issues of material fact as to whether Sichenzio had

sufficient knowledge to be liable for aiding and abetting Laura’s other material misstatements.

Accordingly, the Court grants summary judgment in favor of the SEC against Sichenzio on this

claim as it relates to aiding and abetting Laura’s misstatements regarding revenue sharing only

and denies summary judgement as to all other aiding and abetting claims.

V. Statute of Limitations

Defendants also move for partial summary judgment contending that the SEC’s claims

prior to June 2, 2013, are timed barred. ECF No. 157 at 31–32. For the reasons explained

below, the Court holds that a ten-year statute of limitations applies to the SEC’s ability to seek

disgorgement related to its scienter-based claims and, therefore, denies Defendants’ motion for

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partial summary judgment. However, the SEC does not dispute that a five-year statute of

limitations applies to its disgorgement remedy related to its non-scienter claims, which are the

only claims on which the Court is granting summary judgment in favor of the SEC.

On January 1, 2021, Congress passed the National Defense Authorization Act

(“NDAA”), H.R. 6395, § 6501(a)(3) (to be codified at 15 U.S.C. § 78u(d)(8)(A)(ii)), which

extended the statute of limitations to ten years for disgorgement remedies for securities

violations that require the Commission to prove scienter. Stubos, 2022 WL 6776741, at *8.

Before Congress amended the statute of limitations, this Court had ruled that “Defendants can

only face liability for conduct after June 2, 2013.” SEC v. Laura, No. 18-cv-5075, 2020 WL

8772252, *3 (E.D.N.Y. Dec. 30, 2020). Defendants argue that “the Court’s ruling on the statute

of limitations remains the law of the case.” ECF No. 156 at 32.

Given that there was an “intervening change of controlling law,” the Court believes it is

appropriate for it to reconsider its earlier ruling on the statute of limitations. Vornado Realty Tr.

v. Marubeni Sustainable Energy, Inc., 987 F. Supp. 2d 267, 276 (E.D.N.Y. 2013). Congress

explicitly stated that the provisions of the NDAA “shall apply with respect to any action or

proceeding that is pending on, or commenced on or after, the date of enactment of this Act.” See

NDAA, Section 6501(b) (emphasis added). The Second Circuit has recently confirmed that

“[t]he NDAA’s disgorgement amendments explicitly apply to cases pending at the time of

enactment.” SEC v. Ahmed, No. 21-1686, 2023 WL 4219923 (2d Cir. June 28, 2023); see also

Stubos, 2022 WL 6776741, at *12 (“the words ‘pending on’ clearly envision . . . that the statute

of limitations contained in the NDAA has some retroactive effect and, in turn, revives some

previously time-barred claims”).

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Many of the forms of relief available to the SEC are still timed barred, however. While

the SEC may now pursue a disgorgement remedy at trial pursuant to the sections with a scienter

element22 relating to investor payments made within the ten-year period before the SEC filed this

action, civil penalties for all of the SEC’s claims are still subject to the original five-year statute

of limitations, regardless of whether the claims require a finding of scienter. Xia, 2022 WL

17539124, at *13 (civil penalties subject to original five-year statute of limitations); see SEC v.

Fowler, 6 F.4th 255, 260 (2d Cir. 2021) (civil penalties subject to original five-year statute of

limitations), cert. denied, 211 L. Ed. 2d 367, 142 S. Ct. 590 (2021). The SEC may, however,

seek disgorgement and injunctive relief based on these claims at trial, given the change in law.

See SEC v. Gallison, 588 F. Supp. 3d 509, 521 (S.D.N.Y. 2022) (“pursuant to the NDAA,

Congress has explicitly decided that a ten-year statute of limitations applies for the SEC’s

injunctive relief”); 15 U.S.C. § 78u(d)(8)(A), (B).

CONCLUSION

For the foregoing reasons, the Court GRANTS Plaintiff’s motion for summary judgment

on claim one as to Laura’s material misstatements in the investor contracts under Section

17(a)(2) of the Securities Act, except as it pertains to statements regarding “working capital”; on

claim seven, as to whether Laura acted as an unlicensed broker under Section 15(a) of the

Exchange Act; and on claim five, as to whether Sichenzio aided and abetted Laura’s material

misstatements under Section 17(a)(2) of the Securities Act, but only as to the revenue share

agreements.

22 Section 17(a)(1) of the Securities Act and Section 10(b) of the Exchange Act.

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The Court DENIES Plaintiff’s motion for summary judgment on claim two as to whether

Laura made material misstatements with scienter under Section 10(b) of the Exchange Act;

DENIES Plaintiff’s motion for summary judgment on claim six, as to whether Sichenzio aided

and abetted Laura’s material misstatements under Section 10(b) of the Exchange Act; and

DENIES Plaintiff’s motion for summary judgement on claims one, two, three, and four, as to

whether both Defendants engaged in a fraudulent misappropriation scheme.

The Court further DENIES Defendants’ request to strike expert testimony, and to bar the

SEC from raising claims that arose prior to June 2, 2013—the SEC may pursue a disgorgement

remedy and injunctive relief under Section 17(a)(1) and Section 10(b) relating to investor

payments made within the ten-year period before the SEC filed this action.

SO ORDERED.

/s/ Hector Gonzalez

HECTOR GONZALEZ

United States District Judge

Dated: Brooklyn, New York

June 28, 2023

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