Securities and Exchange Commission v. Arcturus Corporation

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

SECURITIES AND EXCHANGE §

COMMISSION, §

§

Plaintiff, §

§

v. § Civil Action No. 3:13-CV-4861-K

§

ARCTURUS CORPORATION, §

ASCHERE ENERGY, LLC, LEON §

ALI PARVIZIAN a/k/a §

ALEX PARVIZIAN, ALFREDO §

GONZALEZ, AMG ENERGY, LLC, §

ROBERT J.BALUNAS, and §

R. THOMAS & CO., LLC, §

§

Defendants. §

MEMORANDUM OPINION AND ORDER

Before the Court is Plaintiff Securities and Exchange Commission’s (the “SEC”)

Motion for Remedies and for Entry of Final Judgment as to Defendants Parvizian,

Arcturus, and Aschere (the “Motion”) (Doc. No. 271). Defendants Leon Ali Parvizian

a/k/a Alex Parvizian, Arcturus Corporation, and Aschere Energy LLC (together, the

“Parvizian Defendants”) filed a Response (the “Response”) (Doc. No. 281) in

opposition to the Motion and the SEC filed a Reply in Support of its Motion (the

“Reply”) (Doc. No. 285). Also before the Court are the Parvizian Defendants’

Supplemental Response (the “Supplemental Response”) (Doc. No. 297) and Plaintiff’s

Reply (the “Supplemental Reply”) (Doc. No. 299). Having considered the Motion,

the responses, the replies, the applicable law, and the relevant portions of the record,

the Court GRANTS the Motion for the following reasons.

I. Background

All page citations herein are to the CM/ECF-assigned page number. The Court

recites only the relevant background of this case as it relates to the analysis and

determination of this Motion. See also Doc. No. 76 (prior Memorandum Opinion and

Order providing detailed factual background).

The SEC claims that, from 2007 through 2011, the Parvizian Defendants

offered and sold, through unregistered brokers, interests in six oil and gas well drilling

projects that were unregistered securities. Doc. No. 5 at 6-8, 26-27. Further, in their

efforts to raise money from investors, the Parvizian Defendants made false, fraudulent,

and material misrepresentations and omissions. Id. at 14-26. The SEC asserts that the

Parvizian Defendants raised almost $22 million for these six offerings from 339

investors across the United States. Id. at 9; see Doc. No. 271-1 at 3. The six oil and

gas well drilling projects became the subject of an investigation by the SEC. Id.

In December 2013, the SEC filed this civil enforcement action alleging violations

of the registration and anti-fraud provisions of Sections 5(a), 5(c) and 17(a) of the

Securities Act of 1933 (the “Securities Act”), and Sections 10(b) and 15(a) of the

Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 thereunder. See

Doc. No. 5 at 1, 28-31. This matter was set for trial on October 4, 2021. Then, on

October 6, 2021, the parties filed an Agreed Motion for Entry of Agreed Partial

Judgment (Doc. No. 266) as to the liability of the Parvizian Defendants, reserving for

the Court the remedies, if any, to be imposed. Doc. No. 266 at 1. The Court entered

the parties’ Agreed Partial Judgment that same day. Doc. No. 267. (The other named

defendants—Alfredo Gonzalez, AMG Energy, LLC, Robert J. Balunas, and R. Thomas

& Co., LLC—previously agreed to the entry of final judgments taken against them.

Doc. Nos. 235, 242, 268 & 269.) The Agreed Partial Judgment includes a provision

that states, in relevant part,

Further, the Court shall determine whether it is appropriate to order

disgorgement of ill-gotten gains and/or a civil penalty pursuant to

Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section

21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and, if so, the

amount(s) of the disgorgement and/or civil penalty. If disgorgement is

ordered, the Court will determine whether it is appropriate to order

prejudgment interest thereon. In connection with the Commission’s

motion for remedies, and at any hearing held on such a motion: (a)

Defendants will be precluded from arguing that they did not violate

the federal securities laws as alleged in the complaint; (b) Defendants

may not challenge the validity of this Consent or the Judgment; (c)

solely for the purposes of such motion, the allegations of the Complaint

shall be accepted as and deemed true by the Court; and (d) the Court

may determine the issues raised in the motion on the basis of affidavits,

declarations, excerpts of sworn deposition or investigative testimony,

and documentary evidence, without regard to the standards for

summary judgment contained in Federal Rule of Civil Procedure 56(c).

In connection with the Commission’s motion for remedies, the parties

may take discovery, including discovery from appropriate non-parties.

Doc. No. 267 at 2-3.

The SEC filed this Motion seeking permanent injunction, disgorgement of ill-

gotten gains totaling $9,844,127 plus prejudgment interest (jointly and severally), and

assessment of a $500,000 third-tier civil penalty (jointly and severally). In their

Response to the Motion, the Parvizian Defendants requested discovery, as permitted

by the parties’ Agreed Partial Judgment, to purportedly aid the Court in its

determination of this Motion, and specifically to “allow the Court to avoid basing its

consideration of this [disgorgement] issue on an approximation.” Doc. No. 281 at 8.

The Court entered an order providing the Parvizian Defendants an opportunity to

further brief this discovery request to identify with more specificity the discovery

sought, from whom, and how the discovery would assist the Court. Doc. No. 288. The

Parvizian Defendants filed a brief in support (Doc. No. 289) and the SEC filed a

response (Doc. No. 290). The Court issued an order granting in part the Parvizian

Defendants’ request only as to discovery related to the business expenses and

accounting documents that they identified in their brief. Doc. No. 292 at 2. The

Court specifically denied the Parvizian Defendants’ request for time to secure the tax

returns and Forms K-1. Id. at 1. Thereafter, the Parvizian Defendants filed their

Supplemental Response to the Motion for remedies, and the SEC filed its

Supplemental Reply.

II. Motion for Remedies

A. Facts Accepted as and Deemed True for Motion for Remedies

As previously noted, the parties’ Agreed Partial Judgment provides that, “for the

purposes of such motion [for remedies], the allegations of the Complaint shall be

accepted as and deemed true by the Court[.]” Doc. No. 267 at 2-3. Accordingly, as

agreed to by the parties, the Court accepts and deems as true the facts set forth in the

Amended Complaint (Doc. No. 5).

Parvizian formed his companies, Arcturus and Aschere, to offer and sell interests

in six purported joint ventures involving oil and gas exploration and drilling activities—

Hillcock (Arcturus), Piwonka (Arcturus), Conlee (Aschere), Frayley-Nelson (Aschere),

Chips (Aschere), and Wied Field (Aschere) (each separately, the “Offering”, and

together, the “Offerings”). In total, the Parvizian Defendants raised almost $22 million

(net) from at least 339 investors nationwide for these Offerings through entities

Parvizian controlled and salespersons he directed.

Parvizian labeled these Offerings as “joint ventures” to avoid federal securities

regulations. However, these Offerings were in fact securities under federal law, and

none were registered with the SEC nor were they exempt from registration. Further,

Parvizian was not a registered broker-dealer with the SEC or associated with a broker-

dealer registered with the SEC when he offered or sold these securities. Parvizian

prepared written offering materials, such as Confidential Information Memoranda

(“CIMs”) and Joint Venture Agreements (“JVAs”), for the Offerings that were

distributed to investors and that included material misrepresentations and omissions.

Although investors were led to think they would be active participants in the

management of the Offerings, Parvizian (through Arcturus and Aschere) had near

exclusive control of every aspect of each venture and the investors were just passively

involved with no actual control despite the Offering materials suggesting otherwise.

In addition to the illegal sale of the unregistered Offerings, the Parvizian

Defendants committed fraud in connection with these Offerings, failing to make

disclosures and making fraudulent and material misrepresentations to investors. For

instance, the Parvizian Defendants failed to disclose, or insufficiently disclosed, then-

current litigation that would materially affect either Aschere or Arcturus or the

Offerings. The investors were also not informed of the significant mark-up of well costs

for four of the Offerings which the Parvizian Defendants used to set an inflated offering

price. Parvizian also did not segregate the funds for each Offering and the Parvizian

Defendants used funds from these Offerings for non-venture related purposes, such as

legal fees and settlement payments for unrelated litigation as well as personal expenses,

without disclosing this to investors or obtaining their approval. Further, Parvizian

prematurely called for and received from the investors completion funds for some of

the Offerings even though drilling had not yet begun or it was well-before completion

because the Offering’s proceeds had been completely (or almost completely) spent on

non-venture expenses; but Parvizian never disclosed any of this to the investors.

Parvizian also raised funds for an Offering (Fraley-Nelson) despite knowing, and

without disclosing to investors, that Aschere’s working interest in the well had been

terminated for failure to pay its share of the drilling costs.

B. Disgorgement

Disgorgement of ill-gotten gains (known by various labels) has long been part of

“equity jurisprudence.” SEC v. Hallam, 42 F.4th 316, 327 (5th Cir. 2022); see Liu v.

SEC, 591 U.S. 71, 72, 79-82 (2020) (discussing the history of this equitable remedy

“strip[ping] wrongdoers of their ill-gotten gains,” sometimes referred to as “restitution,

an accounting, or disgorgement”). In 2002, Congress amended the Exchange Act to

provide that, in civil enforcement actions, the SEC “‘may seek, and any federal court

may grant, any equitable relief that may be appropriate or necessary for the benefit of

investors.’” Hallam, 42 F.4th at 330 (quoting 15 U.S.C. § 78u(d)(5)). In Liu, the

Supreme Court defined the contours of “any equitable relief” as permitted under §

78u(d)(5) and held that a court could award disgorgement that “does not exceed a

wrongdoer’s net profits and is awarded for victims.” Liu, 591 U.S. at 75. A remedy

that compels the wrongdoer to pay more than his profits from the wrongdoing would

convert this equitable remedy into a penalty which is not permitted under § 78u(d)(5).

Id. at 79-80, 85.

The Fifth Circuit recently remarked that, “before this or any other circuit could

authoritatively construe Liu,” Congress amended specific provisions of § 78u(d) in

2021. Hallam, 42 F.4th at 334 (citing The William M. (Mac) Thornberry National

Defense Authorization Act for Fiscal Year 2021 (the “2021 NDAA”), Pub. L. No. 116-

283, § 6501, 134 Stat. 3388, 4625-26 (2021) (amending 15 U.S.C. § 78u)). As

amended, Section 78u(d)(3) now vests federal courts with jurisdiction to “require

disgorgement under paragraph (7) of any unjust enrichment by the person who

received such unjust enrichment as a result of such violation.” § 78u(d)(3). In addition

to the “equitable relief” permitted under § 78u(d)(5), Congress explicitly authorized

that, in actions brought “under any provision of the securities laws, the [SEC] may

seek, and any Federal court may order, disgorgement.” § 78u(d)(7). The Fifth Circuit

concluded that this newly authorized “legal disgorgement” is separate “from the

equitable ‘disgorgement’ permitted in Liu. Hallam, 42 F.4th at 341; cf. id. (commenting

that Congress’s decision to use the term “disgorgement” rather than the “generic term

‘equitable relief’” “suggests that the remedy is not equitable.”). Finally, these

amendments apply “to any action or proceeding that is pending on . . . the date of

enactment of the 2021 NDAA.” Id. at 335 (cleaned up) (citing 2021 NDAA §

6501(b)).

The Fifth Circuit expressly “reject[ed] the suggestion that the [2021]

amendments merely codif[ied] Liu.” Hallam, 42 F.4th at 337. The Fifth Circuit

concluded instead that Congress’s “swift, expansive action is more consistent with a

desire to curtail the [Liu] Court’s decision—that is, to permit the sort of disgorgement

awards ordered before the [Liu] Court reemphasized ‘the limitations upon its

availability that equity typically imposes.’” Hallam, 42 F.4th at 341 (quoting Liu, 591

U.S. at 87). Although this “legal disgorgement” is distinct from the “equitable

disgorgement” recognized in Liu, courts nevertheless apply the same burden-shifting

framework outlined by the Supreme Court in Liu. Id.

Under this framework, the SEC “has the burden reasonably to approximate the

defendant’s ‘unjust enrichment’ attributable to the securities violation.” Id. (citing §

78u(d)(3) and SEC v. Halek, 537 F. App’x 576, 581 (5th Cir. 2013)). The amount of

“unjust enrichment” cannot “include ‘income earned on ill-gotten profits, but it may

include interest.” Hallam, 42 F.4th at 341 (internal quotations omitted) (quoting SEC

v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978)). If the SEC satisfies its burden, the

defendant must then rebut the SEC’s evidence by proving that the amount requested

is “unreasonable”. Hallam, 42 F.4th at 341 (citing Halek, 537 F. App’x at 581).

1. Disgorgement Amount

The SEC asks the Court to order disgorgement from the Parvizian Defendants,

jointly and severally, of $9,844,127, the total of the ill-gotten profits from their illegal

Offerings and fraudulent scheme that violated federal securities laws. See Doc. No. 267

at 2 (citing § 78u(d)(3)); Doc. No. 271 at 5 (citing § 78u(d)(7)). The Court has

carefully reviewed the SEC’s supporting evidence, and has done so in light of the facts

previously noted which the Court must take and deem as true. See, e.g., Doc. No. 271-

1 (sworn declaration of Ty Martinez—SEC Senior Account, CPA, certified Internal

Auditor, Certified Fraud Examiner) at 4-8; see supra Sec. II.A. Mr. Martinez’s

disgorgement approximation is based entirely on the Parvizian Defendants’ own bank

and financial records. Doc. No. 271-1 at 2-8; see SEC v. Voight, 2021 WL 5181062, at

*7 (S.D. Tex. June 28, 2021), aff’d, 2023 WL 1778178 (5th Cir. Feb. 6, 2023). The

net proceeds raised by the Parvizian Defendants for all six Offerings totaled

$21,861,929 from 339 investors. See, e.g., id. at 3. In calculating the disgorgement

amount, Mr. Martinez began with the “net proceeds after investor returns/refunds,

subtracted well and drilling expenses affiliated with each Offering, and deducted

distributions to investors.” Id. at 4-5; see Voight, 2021 WL 5181062, at *7. Mr.

Martinez used the Parvizian Defendants’ own Accounting Ledgers (which were

previously filed with the Court) to identify legitimate business expenses for purposes

of his disgorgement calculation. Id. at 5, 7. Mr. Martinez’s sworn statement is that

his disgorgement calculation is a reasonable approximation of their unjust enrichment

and that he resolved any discrepancies in the Parvizian Defendants’ favor. See, e.g., id.

at 5; see also id. at 5-8 (detailed explanation and charts explaining how he arrived at his

disgorgement calculation).

The Court finds that the SEC’s evidence satisfies its burden of showing that the

requested disgorgement amount of $9,844,127 is a reasonable approximation of the

Parvizian Defendants’ unjust enrichment from their violations of federal securities laws

as to each of the six Offerings at issue. See Hallam, 42 F.4th at 341; see also Doc. No.

237 at 2 (“Defendants will be precluded from arguing that they did not violate the

federal securities laws as alleged in the complaint.”).

Because the SEC met its burden, the Parvizian Defendants were required to then

prove that this is an unreasonable amount; but they failed to do so. In their initial

Response to the Motion, the Parvizian Defendants did not produce any evidence of

legitimate business expenses and did not otherwise demonstrate how this disgorgement

amount is not a reasonable approximation. See Hallam, 42 F.4th at 341. The Parvizian

Defendants argue that Mr. Martinez does not distinguish funds that were illegally

obtained from those legally obtained, that he “assumes” the investor funds were “ill-

gotten gains” without having made a “detailed accounting”, that legitimate expenses

were not “properly or fully account[ed] for”, and that there are “multiple gaps” in his

analysis. Doc. No. 281 at 10-11. Each of these assertions is without merit. First, the

Court could not find, and the Parvizian Defendants do not cite, any authority for their

suggestion that a detailed accounting is required. Caselaw is clear that the SEC is

required only to show that the requested amount of disgorgement is a reasonable

approximation of the Parvizian Defendants’ unjust enrichment from these securities

violations. Hallam, 42 F.4th at 341 (internal citations omitted). And “[a]ny risk of

uncertainty [in calculating disgorgement] should fall on the wrongdoer whose illegal

conduct created that uncertainty.” SEC v. Gilman, Civ. Action No. 3:18-CV-1421-L,

2021 WL 4125195, at *6 (N.D. Tex. Sept. 9, 2021)(Lindsay, J.) (quoting SEC v. First

City Fin. Corp., Ltd., 890 F.2d 1215, 1232 (D.C. Cir. 1989)); Myers, 2018 WL

11353113, at *6 (“Lastly, any uncertainty is to be resolved against [the defendant].”).

Further, all six of the Parvizian Defendants’ Offerings were unlawful, therefore all

investor funds were illegally obtained and “all of the profits of those [O]fferings are

subject to disgorgement.” Voight, 2021 WL 5181062, at *10. Based on the Parvizian

Defendants’ own financial and bank records, Mr. Martinez very clearly identified and

then deducted the legitimate business expenses incurred by each of the Offerings. See,

e.g., Doc. No. 271-1 at 8; see also id. at 5 (testifying that inconsistencies or discrepancies

were “skewed in the Defendants’ favor”); id. at 7-8 (explaining that, in calculating the

disgorgement amount, certain drilling expenses and investor distributions, totaling over

$2.3 million, were nevertheless deducted from the net funds raised even though these

expenses were incurred and the distributions were made outside the relevant time period

of Mr. Martinez’s review, which was the end of July 2012). The Court certainly may

not disregard evidence of legitimate expenses; but the Parvizian Defendants bear the

burden of providing evidence of such expenses. To be sure, “Liu did not purport to

impact the rule on which party bears the burden of proving legitimate expenses.”

Voight, 2021 WL 5181062, at *10. Here, the Parvizian Defendants provide no such

evidence.

The Parvizian Defendants also argue that the SEC fails to provide a reasonable

approximation of unjust enrichment because “Arcturus and Aschere operated at a

cumulative net loss exceeding $1,000,000 during the relevant years of operation,”

attaching tax returns for 2009 through 2013 as evidence that the Parvizian Defendants

did not realize any “profits causally connected to the violation.” Doc. No. 281 at 12.

According to the Parvizian Defendants, “[b]ecause Arcturus and Aschere ultimately

lost money in their business operations, there is no unjust enrichment or overall profit

attributable to these respective” Defendants and disgorgement should not be ordered.

Id. at 12-13; see id. at 12 (discussing net losses incurred by Amerest Securities, which is

wholly owned by Parvizian, as further evidence the Parvizian Defendants were not

unjustly enriched in any way). Putting aside the question of whether the tax return

information is in fact truthful, this argument fails for other reasons. The Parvizian

Defendants do not explain their conclusory assertion that because these entities

allegedly suffered “cumulative net loss[es]” “there is no unjust enrichment or overall

profit” attributable to the Parvizian Defendants that could support a disgorgement

award. Id. at 12. There is simply no legal basis for such an argument. The Court is

concerned only with the Parvizian Defendants’ unjust enrichment from these six

Offerings. This record substantiates the conclusion that the Parvizian Defendants were

unjustly enriched as the result of their violations of securities laws related to these

Offerings. The Parvizian Defendants’ mere argument fails to rebut the SEC’s showing

that the disgorgement amount of $9,844,127 is a reasonable approximation of their

unjust enrichment.

In addition to these meritless arguments, the Parvizian Defendants also

requested leave to conduct discovery, as permitted under the Agreed Partial Judgment,

to allow them to “respond more fulsomely” to the SEC’s Motion and to assist the Court

in its determination of whether the disgorgement amount is a reasonable

approximation. Doc. No. 281 at 7. After inviting the parties’ briefing on this request

(to which the SEC was wholly opposed), the Court entered an order granting in part

and denying in part the discovery request. The Court expressly denied the Parvizian

Defendants’ request for time to secure tax returns and Forms K-1, but the Court did

grant time for discovery as to their own accounting documents and records identifying

business expenses. Doc. No. 292 at 1-2.

The Parvizian Defendants filed their Supplemental Response (Doc. No. 297),

claiming it “provide[s] the Court with information concerning additional, legitimate

business expenses that they content [sic] should be considered by the Court in

undertaking its disgorgement analysis under Liu.” Doc. No. 297 at 3. However, the

only information the Parvizian Defendants include are “additional tax transcripts of

complete tax returns for the Defendant companies during the relevant time period”,

which the Court expressly precluded in its discovery order. Therefore, the Court does

not consider those tax returns. Further, the Parvizian Defendants echo the “net loss”

argument from their original Response. As the Court previously explained in rejecting

this argument, the Parvizian Defendants’ claim that these losses are “legitimate

expenses” to be deducted is completely unfounded. To be sure, the Supplemental

Response includes no new information that was authorized in discovery and certainly

none evidencing legitimate business expenses that may be deducted. See also Voight,

2021 WL 5181062, at *10 (“Liu did not purport to impact the rule on which party

bears the burden of proving legitimate expenses.”).

In conclusion, the Court finds that the Parvizian Defendants fail to rebut the

SEC’s showing that its disgorgement amount is a reasonable approximation of their

unjust enrichment the Parvizian Defendants realized from their securities violations.

a. Inability to pay

The Parvizian Defendants also maintain that “courts have consistently and

routinely reduced disgorgement” when a defendant makes a showing that they are

unable to pay. See Doc. No. 281 at 9. The only cases cited by the Parvizian Defendants

in support of this assertion are administrative matters. The Fifth Circuit and district

courts in this Circuit have repeatedly emphasized that financial hardship is not a factor

the district court considers in whether to award disgorgement and for what amount.

See SEC v. United Energy Partners, Inc., 88 F. App’x 744, 746 (5th Cir. 2004) (holding

the district court did not abuse its discretion in awarding $7.5 million in disgorgement

where this was “a reasonable estimate of the profits received by fraud” and the

defendants “inability to pay is irrelevant.”); SEC v. Myers, 2018 WL 11353113, at *4

(E.D. Tex. July 25, 2018) (“Financial hardship is not a ground for denying

disgorgement.”); SEC v. McCollum, 2017 WL 8182626, at *2 (W.D. Tex. Apr. 11,

2017) (“When determining disgorgement, a defendant’s inability to pay is irrelevant.”)

(internal quotations omitted); SEC v. Bergin, Civ. Action No. 3:13-CV-1940-M, 2015

WL 4275509, at *2 (N.D. Tex. July 15, 2015)(Lynn, J.) (“[T]he defendant may not

plead financial hardship as a ground for denying disgorgement.”). The Fifth Circuit

confirmed that if the SEC establishes the defendant was unjustly enriched as the result

of his wrongdoing, “that amount of money may be disgorged even if the defendant has

otherwise disposed of, reinvested, or spent the particular assets that he wrongfully

obtained.” SEC v. Seghers, 298 F. App’x 319, 336 (5th Cir. 2008); see id. (“A defendant

is not immune from disgorgement merely because he has spent or lost the proceeds of

his fraudulent scheme.”). Even if the Court were to consider this factor, which it is

not, the Parvizian Defendants submit only argument on this point and do not make

any showing about their inability to pay. See, e.g., Doc. No. 281 at 18.

b. Disgorgement awarded for Investors

In addition to ensuring disgorgement does not exceed the Parvizian Defendants’

net profits, the Court must confirm disgorgement is awarded for victims so to not

convert this into a punitive remedy. SEC v. Blackburn, 15 F.4th 676, 682 (5th Cir.

2021) (citing Liu, 591 U.S. at 79). The SEC has identified 339 investors who were

victims of the Parvizian Defendants’ fraudulent Offerings, and the SEC maintains that

it is feasible to distribute disgorged funds to these investors. See, e.g., Doc. No. 271 at

7; Doc. No. 271-1 at 3; see also Liu, 591 U.S. at 89 n.5 (“To the extent that feasibility

is relevant at all to equitable principles, we observe that lower courts are well equipped

to evaluate the feasibility of returning funds to victims of fraud.”). Further, the SEC

has proposed a process for the return of disgorged funds through a fund administered

by a distribution agent, who is appointed by the Court, and the disbursements to

investors may be made only on order of the Court. Doc. No. 271 at 7-8; Doc. No.

271-2 at 6. The Parvizian Defendants assertion that the SEC has not and cannot show

an appropriate distribution plan is simply without merit.

The Court finds that the SEC has identified the investors of the Parvizian

Defendants’ fraudulent Offerings, that the disgorgement of $9,844,127 is being

awarded for the benefit of these investors, that the distribution of the disgorged funds

to the investors is feasible, and that there is a plan to disburse the money to these

investors that will be administered with the Court’s supervision. See Blackburn, 15 F.4th

at 682 (holding that the district court’s disgorgement order “easily satisfies Liu” on

nearly identical facts).

2. Amount to be Disgorged

Based on this record, the SEC has shown the Parvizian Defendants raised

approximately $21,861,929 from the investors in the six Offerings. The net

disgorgement sought by the SEC, however, is $9,844,127 which reflects deductions for

investor distributions and legitimate expenses related to the six Offerings. The

Parvizian Defendants did not produce any evidence of legitimate business expenses

and did not otherwise demonstrate that this disgorgement amount is not a reasonable

approximation. See Hallam, 42 F.4th at 341. Accordingly, the Court finds a

disgorgement award of $9,844,127 is a reasonable approximation of the Parvizian

Defendants’ ill-gotten gains and this amount shall be disgorged from them.

3. Joint and Several Liability

The SEC also seeks joint and several liability for the Parvizian Defendants,

asserting that they were all “partners in concerted wrongdoing and are equally culpable

for the fraudulent scheme.” The Parvizian Defendants do not respond to this.

“Courts are likely to order joint and several liability against defendants as to

disgorgement when ‘two or more individuals or entities collaborate or have close

relationships in engaging in illegal conduct.’” Myers, 2018 WL 11353113, at *4

(quoting SEC v. Hughes Cap. Corp., 124 F.3d 449, 455 (3d Cir. 1997)). On this record,

the Court finds that the relationship of the Parvizian Defendants—Leon Ali Parvizian

a/k/a Alex Parvizian, Arcturus Corporation, and Aschere Energy, LLC—is sufficiently

close to support joint and several liability for disgorgement. Cf. Liu, 591 U.S. at 1949

(discussing the equitable principles of joint and several liability and directing the court

“on remand to determine whether the facts are such that petitioners can, consistent

with equitable principles, be found liable for profits as partners in wrongdoing or

whether individual liability is required.”). Accordingly, the Parvizian Defendants are

jointly and severally liable for disgorgement in the amount of $9,844,127.

4. Prejudgment Interest

A court may award prejudgment interest to prevent the defendant from profiting

from his securities violations by means of using his ill-gotten gains interest-free.

Gilman, 2021 WL 4125195, at *7 (citing SEC v. Blatt, 583 F.3d 1325, 1335 (5th Cir.

1978)). An award of prejudgment interest is within the district court’s discretion. Id.

(citing United Energy Partners, 88 F. App’x at 747).

The SEC seeks prejudgment interest totaling $938,770.65 to be paid jointly and

severally. Doc. No. 271 at 8; Doc. No. 271-1 at 8. This calculation is made from

August 20, 2019 (the date the case was remanded back to this Court) through March

1, 2022 (the filing date of the SEC’s Motion for Remedies and for Entry of Final

Judgment). The Parvizian Defendants do not contend that prejudgment interest is not

allowed or appropriate, nor do they object to the SEC’s calculation; they argue only

that, if it is ordered at all, any prejudgment interest should be “a reasonable amount”

taking into account their inability to pay based on their financial circumstances. See,

e.g., Doc. No. 281 at 7, 9, 18. As the Court previously remarked, the Parvizian

Defendants do not demonstrate their inability to pay. Even if the Court were inclined

to consider this factor, the Parvizian Defendants submit nothing that even remotely

establishes this. See, e.g., id. at 18. The Parvizian Defendants offer only attorney

argument, complaining that the “crippling amount” of money the SEC seeks “would

have an enduring and permanent financial impact” on them and “would financially

devastate Mr. Parvizian”. Id.

The Court has ordered disgorgement from the Parvizian Defendants of the net

profits from their securities violations and the Court finds they profited from these

violations in their use of these ill-gotten gains interest-free, “thereby offending basic

principles of justice and equity.” Gilman, 2021 WL 4125195, at *7; see Myers, 2018

WL 11353113, at *7. The Court finds in its discretion that the Parvizian Defendants

should be ordered to pay prejudgment interest jointly and severally in the amount of

$938,770.65.

C. Civil Penalty

The Securities Act and the Exchange Act authorize the imposition of civil

penalties for securities violations. 15 U.S.C. § 77t(d); 15 U.S.C. § 78u(d)(3). These

penalties are organized on a three-tier structure of increasing amounts based on the

severity of the defendant’s conduct and securities violations, each tier demanding a

specific showing. 15 U.S.C. § 77t(d)(2); 15 U.S.C. § 78u(d)(3)(B); 17 C.F.R. §

201.1001(b). The court determines the amount “in light of the facts and

circumstances”, but the maximum penalty that the court can award is the greater of

the gross amount of pecuniary gain or the statutory amount as set by the applicable

tier. 15 U.S.C. § 77t(d); 15 U.S.C. § 78u(d)(3). A third-tier penalty is appropriate

when the securities violation involves fraud and “directly or indirectly result[s] in

substantial losses or created a significant risk of substantial losses to other persons.”

Id. Although there is no statutory guidance for determining the proper civil penalty to

assess, courts have considered certain factors: “(1) the egregiousness of the defendant's

conduct; (2) the degree of scienter; (3) whether the conduct created substantial losses

or the risk of substantial losses to other persons; (4) whether the conduct was isolated

or recurrent; and (5) the cooperation of the defendant with law enforcement

authorities.” SEC v. Offill, Civ. Action No. 3:07-CV-1643-D, 2012 WL 1138622, at

*3 (N.D. Tex. Apr. 5, 2012)(Fitzwater, C.J.) (quoting SEC v. Opulentica, LLC, 479 F.

Supp. 2d 319, 331 (S.D.N.Y. 2007)).

The SEC asks the Court to impose a third-tier civil penalty in the amount of

$500,000 on the Parvizian Defendants jointly and severally for their securities

violations. Doc. No. 271 at 9-10. The SEC maintains that this amount “adequately

accounts for any possible mitigating factors” and is appropriate particularly “when the

maximum statutory penalty per each act or omission is over $9 million”. Doc. No. 285

at 12. The Parvizian Defendants do not challenge the SEC’s request for a third-tier

penalty, nor do they address any of the factors courts consider in determining whether

to impose a civil penalty. Rather, as with prejudgment interest, the Parvizian

Defendants respond only that the Court should decline to impose a civil penalty in

light of their dire “financial circumstances” or “inability to pay”. Doc. No. 281 at 18.

Again, the Parvizian Defendants fail to offer any evidence, let alone make a

sufficient showing, regarding their inability to pay such a penalty. See SEC v. Allen,

Civ. Action No. 3:11-CV-0882-O, 2012 WL 5875623, at *6 (N.D. Tex. Nov. 21,

2012)(O’Connor, J.) (rejecting the defendants’ argument that they could not pay the

requested penalties because the defendants did not establish their lack of ability to pay

by a preponderance of the evidence); SEC v. Harris, Civ. Action No. 3:09-CV-1809-B,

2012 WL 759885, at *5 (N.D. Tex. Mar. 7, 2012)(Boyle, J.) (“[I]nability to pay must

be established by a preponderance of the evidence, rather than the plain statement of

a defendant, as we have here.”). Even so, a defendant’s inability to pay a penalty “is

at most one factor to be considered in imposing a penalty, and the Court may impose

a civil penalty even assuming that he is unable to pay.” Harris, 2012 WL 759885, at

*5 (citing SEC v. Warren, 534 F.3d 1368, 1370 (11th Cir. 2008)).

The record establishes that the Parvizian Defendants committed multiple

securities violations arising from the six Offerings, that these violations are egregious

in nature having involved fraud, and that they were committed intentionally or, at

least, with reckless disregard for the legality of the Offerings. Further, the Court finds

that, in committing these violations, the Parvizian Defendants “directly or indirectly”

caused the investors to suffer substantial losses or created a substantial risk of loss to

investors. Finally, the Court finds a civil penalty would serve the need to deter the

Parvizian Defendants and others from violating securities laws.

The Court has carefully considered this record, the aforementioned factors, and

the deterrent purpose of civil penalties. Because there are multiple violations of

securities law here, the Parvizian Defendants could be ordered to pay the maximum

penalty multiplied by the number of violations. See Offill, 2012 WL 1138622, at *3.

However, the Court finds that a third-tier civil penalty in the amount of $500,000

against the Parvizian Defendants jointly and severally is appropriate. See Allen, 2012

WL5875623, at *7 (imposing third-tier civil penalties against the individual defendant

and his related entities jointly and severally); cf. Myers, 2018 WL 11353113, at *9

(“The Court views this as a mild penalty under the circumstances and an appropriate

guidepost given the lack of argument as to amount of penalty.”).

D. Permanent Injunction

The SEC may seek an injunction pursuant to the Securities Act and the

Exchange Act. 15 U.S.C. § 77t(b); 15 U.S.C. § 78u(d); SEC v. Zale Corp., 650 F.2d718,

720 (5th Cir. Unit A July 1981). Injunctive relief may be proper “when the inferences

flowing from the defendant's prior illegal conduct, viewed in light of present

circumstances, betoken a ‘reasonable likelihood’ of future transgressions.” Zale Corp.,

650 F.2d at 720. In determining whether to impose a permanent injunction, the court

considers several factors, including: (1) the egregiousness of the defendant’s conduct;

(2) isolated or recurrent nature of the violation; (3) degree of scienter; (4) sincerity of

the defendant’s recognition of his transgression; and (5) likelihood of the defendant’s

job providing opportunities for future violations. SEC v. Gann, 556 F.3d 932, 940 (5th

Cir. 2009).

The SEC argues, generally, that the Parvizian Defendants committed multiple

violations, which were recurrent, egregious, and done with a high degree of scienter, and

with no understanding or recognition of the wrongdoing. Doc. No. 271 at 3; see id. at

3-5 (detailed argument on these factors). The Parvizian Defendants do not respond to

the SEC’s request for injunctive relief.

For all the reasons previously explained and the facts deemed true, the Court

finds the Parvizian Defendants acted egregiously in violating securities laws multiple

times over a period of years with respect to the six fraudulent Offerings. Further, Mr.

Parvizian has lengthy experience in the securities industry and has previously had

regulatory issues which resulted in his consent to being barred to register as a securities

agent for a period of five years with the Texas State Securities Board and a permanent

bar from associate with any Financial Industry Regulatory Authority member. Doc.

No. 5 at 4-5. The record is devoid of any evidence or even suggestion that Mr.

Parvizian is remorseful or recognizes his wrongdoing. Finally, this record supports the

conclusion that the Parvizian Defendants are likely to commit future securities

violations. Having considered the factors, the Court finds that permanent injunctive

relief against the Parvizian Defendants prohibited future securities violations is

warranted.

IV. Conclusion

For the foregoing reasons, the Court GRANTS the SEC’s Motion for Remedies

and for Entry of Final Judgment as to Defendants Parvizian, Arcturus, and Aschere

(Doc. No. 271). The Parvizian Defendants are jointly and severally liable for

disgorgement in the amount of $9,844,127. The Parvizian Defendant are jointly

and severally liable for prejudgment interest in the amount of $938,770.65. The

Parvizian Defendants are jointly and severally liable for a third-tier civil penalty in

the amount of $500,000. The Parvizian Defendants shall be permanently enjoined

from future securities violations. The Court will enter a separate final judgment

consistent with this Memorandum Opinion and Order.

SO ORDERED.

Signed January 28", 2025.

ED KINKEADE

UNITED STATES DISTRICT JUDGE

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