A defendant’s failure 12 to appear, “makes a decision on the merits impractical, if not impossible.
How later courts described this case
- A defendant’s failure 12 to appear, “makes a decision on the merits impractical, if not impossible.
Written by the judges who cited it.
The opinion
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7 UNITED STATES DISTRICT COURT
8 NORTHERN DISTRICT OF CALIFORNIA
9
SECURITIES AND EXCHANGE
10 COMMISSION, Case No. 24-cv-05823-RS
11 Plaintiff,
ORDER GRANTING MOTION FOR
12 v. DEFAULT JUDGMENT
13 BERNARDO MENDIA-ALCARAZ, et al.,
14 Defendants.
15
16 INTRODUCTION
17 This is a civil securities enforcement action brought by the Securities and Exchange
18 Commission (“the SEC”) against defendants Bernardo Mendia-Alcaraz and Toltec Capital LLC
19 (collectively, “defendants”) and Relief Defendants Edith F. Ramirez Cano and Fondo Toltec S de
20 RL de CV (collectively, “relief defendants”). The complaint alleges defendants engaged in
21 securities fraud, made unregistered securities offerings, and deceived investors through materially
22 false and misleading statements in violation of the Securities Act of 1933 (“Securities Act”), the
23 Securities Exchange Act of 1934 (“Exchange Act’), and the Investment Advisers Act of 1940
24 (“Advisers Act”). The SEC seeks injunctive relief, disgorgement of the proceeds of the unlawful
25 activities, and the imposition of civil monetary penalties. Neither defendants nor relief defendants
26 filed an answer to the complaint or sought relief from default. For the following reasons, the
27 SEC’s motion for default judgment will be granted.
1 BACKGROUND
2 Defendant Toltec Capital is a California limited liability company, with its principal place
3 of business in San Francisco, California. Toltec Capital described itself as “a San Francisco based
4 private equity firm focused on real estate and index fund investments.” Toltec Capital is wholly
5 owned and controlled by defendant Mendia-Alcaraz, a resident of San Francisco, who serves as its
6 managing partner and CEO. Mendia-Alcaraz has control over Toltec Capital’s bank accounts and
7 statements made by Toltec Capital, including statements in securities offering documents,
8 statements to investors, and statements to the public. Prior to his involvement with Toltec Capital,
9 Mendia-Alcaraz was held in California state detention facilities from May 2007 to July 2009 for
10 alleged financial crimes. Additionally, in February 2010, Mendia-Alcaraz pled no contest to
11 charges of check fraud and theft under California Penal Code §§ 476 and 487. Finally, Mendia-
12 Alcaraz unsuccessfully filed bankruptcy proceedings at least seven times, between August 2018
13 and December 2019.
14 Relief defendant Ramirez Cano is a resident of California who shares a residential address
15 with Mendia-Alcaraz in San Francisco. Relief defendant Fondo Toltec is a Mexican limited
16 liability company based in Mexico City, Mexico. According to Toltec Capital, Fondo Toltec is an
17 operating company of Toltec Capital for the purpose of developing real estate in Mexico. Mendia-
18 Alcaraz also serves as the CEO of Fondo Toltec.
19 The complaint avers that between December of 2019 and September of 2023, defendants
20 raised approximately $3.3 million from 41 investors through the unregistered offer and sale of
21 securities in the form of pooled investment vehicles, promissory notes, and joint venture
22 agreements (collectively, the “Toltec Funds”). Toltec Capital also guaranteed investors a full
23 return of their invested capital and, in many instances, dividend disbursements of between 21%
24 and 36.88% (depending on the Toltec Fund) at the end of their investment period.
25 Although the Toltec Funds purported to identify various investment strategies such as
26 securities trading or providing short-term financing for real estate purchases, investor proceeds
27 were often misappropriated for Ponzi-like payments to other investors or for Mendia-Alcaraz’s
1 personal expenses. Additionally, Mendia-Alcaraz transferred investor funds from Toltec Capital to
2 relief defendants, who lacked a legitimate claim to the investor funds. Consequently, Toltec
3 Capital rarely had sufficient money to cover all investors’ outstanding principal, interest, and
4 dividend payments. Defendants never returned t the investment principal to 33 investors, resulting
5 in the loss of approximately $2.2 million in the investors’ principal, not including interest or
6 dividend payments owed.
7 The complaint alleges defendants made materially false statements and misrepresentations
8 regarding not only the return of investor principal and other payments, but also about Mendia-
9 Alcaraz’s qualifications as an investment manager during the offer and sale of the Toltec Funds.
10 For example, Toltec Capital portrayed Mendia-Alcaraz as having graduated from the Goldman
11 School of Public Policy at the University of California at Berkeley, which Mendia-Alcaraz never
12 in fact attended. Additionally, defendants never informed investors of Mendia-Alcaraz’s criminal
13 history and multiple bankruptcy filings.
14 The SEC brought this action in August of 2024, alleging violations under various
15 provisions of the Securities Act, the Exchange Act, and the Advisers Act. Summons and complaint
16 were served on defendants and relief defendants by a registered process server. Neither defendants
17 nor relief defendants timely responded to the complaint.
18 In late 2024, Mendia-Alcaraz contacted SEC’s counsel by email, requesting an extension
19 of time to respond to the complaint. SEC stipulated to a 14-day extension, but defendants and
20 relief defendants never subsequently responded. After the Clerk then entered default at the SEC’s
21 request, Mendia-Alcaraz emailed SEC’s counsel, stating he would seek relief from default.
22 Neither defendants nor relief defendants has ever done so.
23
24 LEGAL STANDARD
25 Following entry of default, courts are authorized to grant default judgment at their
26 discretion. See Fed. R. Civ. P 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In
27 exercising its discretion, the factors the court may consider include: (1) the possibility of prejudice
1 to the plaintiff; (2) the merits of the plaintiff’s substantive claim; (3) the sufficiency of the
2 complaint; (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning
3 material facts; (6) whether the default was due to excusable neglect; and (7) the strong policy
4 underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool,
5 782 F.2d 1470, 1471-72 (9th Cir. 1986). In considering these factors, all factual allegations in the
6 plaintiff’s complaint are taken as true, except for those relating to damages. TeleVideo Sys., Inc. v.
7 Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987).
8
9 DISCUSSION
10 A. Jurisdiction
11 A court must confirm that it has both subject matter and personal jurisdiction prior to
12 assessing the merits of a default judgment. See In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). It
13 must also “ensure the adequacy of service on the defendant.” Produce v. Cal. Harvest Healthy
14 Food Ranch Mkt. No. 11-CV-4814, 2012 WL 259575, at *2 (N.D. Cal. Jan. 27, 2012). Here,
15 federal subject matter jurisdiction exists under 28 U.S.C. § 1331 because the claims allege
16 violations of federal law. Service is also adequate based on the affidavits of the process server.
17 The remaining question is whether personal jurisdiction can be exercised over defendants and
18 relief defendants. The SEC avers Mendia-Alcaraz and Ramirez Cano resided in San Francisco
19 during the period specified in the complaint and that Toltec Capital had its principal place of
20 business in San Francisco. These facts, taken as true, are sufficient to establish general personal
21 jurisdiction over Mendia-Alcaraz, Ramirez Cano, and Toltec Capital. See Warfield v. Alaniz, 569
22 F.3d 1015, 1028-29 (9th Cir. 2009).
23 Relief defendant Fondo Toltec is a Mexican entity based in Mexico City. Accordingly,
24 there must be sufficient “minimum contacts” to exercise specific personal jurisdiction over it. See
25 Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471 (1985) (citation omitted). Because federal
26 securities laws authorize nationwide service of process, an inquiry into the exercise of specific
27 personal jurisdiction by the relevant forum is “whether the party has sufficient contacts with the
1 United States, not any particular state. Sec. Investor Prot. Corp. v. Vigman, 764 F.2d 1309, 1315
2 (9th Cir. 1985) (internal quotations omitted); see also 15 U.S.C. §§ 77v(a) and 78aa. Minimum
3 contacts are found when “the defendant has acted within any district of the United States or
4 sufficiently caused foreseeable consequences in this country.” Action Embroidery Corp. v. Atl.
5 Embroidery, Inc., 368 F.3d 1174, 1180 (9th Cir. 2004) (citation omitted).
6 Under the three-prong test established by the Ninth Circuit, specific personal jurisdiction
7 may be exercised over Fondo Toltec if: (1) Fondo Toltec purposefully availed itself of the
8 privilege of conducting activities in the forum; (2) the SEC’s claims arise out of or relate to those
9 actions; and (3) the exercise of jurisdiction is reasonable. See Schwarzenegger v. Fred Martin
10 Motor Co., 374 F.3d 797, 802 (9th Cir. 2004) (citing Lake v. Lake, 817 F.2d 1416, 1421 (9th Cir.
11 1987); see also Burger King, 471 U.S. at 476-78. Under this test, the SEC bears the burden
12 satisfying the first two prongs, at which point the burden shifts to Fondo Toltec to “present a
13 compelling case that the presence of some other considerations would render jurisdiction
14 unreasonable.” Id.
15 First, purposeful availment is met if there is evidence that a defendant “purposefully
16 availed himself of the privilege of doing business in a forum,” shown through evidence of the
17 defendant’s actions in the forum “such as executing or performing a contract there.”
18 Schwarzenegger, 374 F.3d at 802. In so doing, “a defendant thus invok[es] the benefits and
19 protections of [the forum state’s] laws” and must, as a quid pro quo, “submit to the burdens of
20 litigation in that forum.” Hanson v. Denckla, 357 U.S. 235, 253 (1958); Burger King, 471 U.S. at
21 476. Here, the SEC has met its burden of showing purposeful availment. Specifically, the
22 promissory notes executed by investors in California contained an “Investment Capital
23 Guarantee,” promising that “Toltec Capital LLC and Fondo Toltec S de RL de CV jointly and
24 severally guarantee the investment capital” of the investor. The notes further provided that “This
25 Joint Venture Agreement shall be construed and governed by the laws of the State of California
26 and . . . [a]ll obligations hereunder shall be deemed performable in the City and County of San
27 Francisco, California.” Fondo Toltec’s contractual obligations with California investors constitute
1 purposeful availment of the benefits and protections of California law because: (1) the “substance
2 of the relationship was formed” in California through Defendants’ solicitation of California
3 investors; (2) the law governing the contracts is the law of California; (3) the contract identifies
4 San Francisco as the location for the execution of the contract; and (4) the contract was ratified by
5 Fondo Toltec through its agent Mendia-Alcaraz. McGlinchy v. Shell Chemical Co., 845 F.2d 802,
6 816 (9th Cir. 1988) (citation omitted). Thus, by invoking the benefits and protections of California
7 law, Fondo Toltec must also “submit to the burdens of litigation” in California. Hansen, 357 U.S.
8 at 253.
9 Second, the SEC’s claims against Fondo Toltec as a relief defendant inarguably arise
10 directly from its contractual role in the investment scheme. Finally, there is nothing to suggest the
11 exercise of jurisdiction over Fondo Toltec is otherwise unreasonable. Accordingly, jurisdiction is
12 proper as to all defendants and relief defendants.
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14 B. The Eitel Factors
15 With jurisdiction established, an analysis of the Eitel factors weighs in favor of granting
16 default judgment.
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18 1. Possibility of Prejudice
19 The first factor concerns the prejudice to the SEC that would result if default judgment
20 were denied. Such prejudice would “necessarily flow[]” from a meritorious claim, “because, in the
21 absence of a default judgment, plaintiff ‘would be without other recourse for recovery’ to which it
22 is entitled.” Dr. JKL Ltd. v. HPC IT Educ. Ctr., 749 F. Supp. 2d 1038, 1048 (N.D. Cal. 2010)
23 (citation omitted). Absent default judgment, the SEC, and the public it is charged with
24 representing, will have no way to obtain the relief it seeks. Therefore, the first Eitel factor supports
25 default judgment.
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1 2. Merits of Substantive Claims and Sufficiency of Complaint
2 The second and third Eitel factors examine the merits of the SEC’s substantive claims and
3 the sufficiency of the complaint, which often are analyzed together. These two factors require that
4 plaintiff’s allegations “state a claim on which the [plaintiff] may recover.” Danning v. Lavine, 572
5 F.2d 1386, 1388 (9th Cir. 1978). Accepting the SEC’s factual allegations as true, the complaint
6 adequately establishes the existence of violations of the relevant securities law and the second and
7 third Eitel factors support default judgment.
8
9 i. Claim under Sections 5(a) and (c)
10 Under Sections 5(a) and (c) of the Securities Act, 15 U.S.C. § 77e(a) and (c), it is
11 “unlawful to offer or sell a security in interstate commerce if a registration statement has not been
12 filed as to that security, unless the transaction qualifies for an exemption from registration.” SEC
13 v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1085 (9th Cir. 2010). To establish a prima facie
14 violation of Section 5, the SEC must show that “(1) no registration statement was in effect as to
15 the securities; (2) the defendant directly or indirectly sold or offered to sell securities; and (3) the
16 sale or offer was made through interstate commerce.” SEC v. Phan, 500 F.3d 895, 902 (9th Cir.
17 2007). The SEC bears the initial burden of proving defendants violated the registration provisions,
18 at which point the burden shifts to defendants to prove that an exemption applies. SEC v. Murphy,
19 626 F.2d 633, 641 (9th Cir. 1980).
20 Here, the SEC has sufficiently alleged defendants offered and sold securities in the form of
21 promissory notes and joint venture agreements without filing a registration statement with the
22 SEC. Defendants’ conduct also involved interstate commerce through the usage of the internet to
23 solicit investors. Further, because defendants failed to respond in this action, they have not met
24 their burden to prove an exemption from Section 5’s registration requirements. Accordingly, the
25 SEC has made a prima facie showing that defendants violated Sections 5(a) and (c).
26
27
1 ii. Claims under Section 17(a), Section 10(b), and Rule 10b-5
2 Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b), 15 U.S.C. § 78j(b),
3 and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, of the Exchange Act prohibit fraudulent
4 conduct “in the offer or sale of securities” or “in connection with the purchase or sale of a
5 security.” Platforms Wireless, 617 F.3d at 1092. Specifically, a Section 17(a) violation requires
6 the SEC to prove defendants, in connection with the offer or sale of a security: (1) employed any
7 device, scheme, or artifice to defraud; or (2) obtained money or property by means of any untrue
8 statement of a material fact or any omission to state a material fact necessary in order to make the
9 statements not misleading; or (3) engaged in any transaction, practice, or course of business which
10 operates or would operate as a fraud or deceit upon the purchaser. 15 U.S.C. § 77q(a). Similarly, a
11 violation Section 10(b) and Rule 10b-5 thereunder requires the SEC to show defendants “(1) made
12 a material misrepresentation or omission (2) in connection with the purchase [or] sale [of a]
13 security (3) with scienter (4) in interstate commerce.” Platforms Wireless, 617 F.3d at 1092; see
14 also 17 C.F.R. § 240.10b-5.
15 The SEC has sufficiently alleged defendants engaged in violations of the relevant statutes.
16 Specifically, the SEC has shown defendants made numerous false and misleading statements in
17 connection with the offer and sale of Toltec Capital securities including: (1) falsely guaranteeing
18 that investors would receive all of their invested capital; (2) falsely representing that investor
19 funds would only be used for investment purposes; (3) misrepresenting Mendia-Alcaraz’s
20 credentials; and (4) failing to disclose his multiple bankruptcy filings and criminal history.1 These
21 false statements and misrepresentations were material because a reasonable investor would want to
22 know that: (1) defendants never maintained funds sufficient to guarantee repayment of invested
23 funds; (2) the funds were not invested but used for personal expenses or Ponzi-like payments to
24 other investors; and (3) Mendia-Alcaraz had not attended the Goldman School of Public Policy
25
26 1 Toltec Capital is an entity wholly owned and controlled by Mendia-Alcaraz. Accordingly,
Mendia-Alcaraz’s conduct and scienter are imputable to Toltec Capital. See In re ChinaCast Educ.
27 Crop. Sec. Litig., 809 F.3d 471, 475-77 (9th Cir. 2015).
1 but had repeatedly filed for bankruptcy and had a criminal history related to financial crimes. See
2 United States v. Jenkins, 633 F.3d 788, 802 (9th Cir. 2011) (citation omitted) (holding that
3 information is “material if ‘a reasonable investor would have considered it useful or significant’”).
4 Additionally, defendants’ statements also establish a high degree of scienter. Based on his
5 ownership and control of Toltec Capital, Mendia-Alcaraz either knew, or was reckless in not
6 knowing, that Toltec Capital: (1) did not have sufficient funds to guarantee investors their invested
7 capital; (2) that investor funds were used for improper purposes; and (3) that his personal history
8 was misrepresented to investors. See, e.g. SEC v. JSG Cap. Investments LLC, No. 16-CV-02814
9 2017, WL 3579570, at *5 (N.D. Cal. June 30, 2017), report and recommendation adopted, No.
10 16-CV-02814, WL 3575599 (N.D. Cal. July 28, 2017) (finding that “the alleged course of
11 conduct—including using the vast majority of funds received either for insiders’ personal benefit
12 or as Ponzi-like payments to earlier investors, as well as unfounded representations regarding . . .
13 the existence of an insurance policy—strongly supports the inference of scienter.”). Finally, the
14 interstate commerce requirement is established given defendants’ usage of the internet to solicit
15 investors.
16
17 iii. Claim under Section 206(4) and Rule 206(4)-8
18 Section 206(4) of the Advisers Act makes it unlawful for any “investment adviser…to
19 engage in any act, practice or course of business which is fraudulent, deceptive, or manipulative.”
20 15 U.S.C. § 80b-6(4). Specifically, a Section 206 violation requires the SEC to show that
21 Defendants are “investment advisers,” or a “person who, for compensation, engages in the
22 business of advising others . . . as to the advisability of investing in, purchasing, or selling
23 securities.” 15 U.S.C. § 80b-2(a)(11). An investment adviser under Section 206 includes persons
24 who manage the funds of others for compensation. See SEC v. Trabulse, 526 F.Supp.2d 1008,
25 1020 n.6 (N.D. Cal. 2007) (citation omitted). Rule 206(4)-8(a) further prohibits “any investment
26 advisor to a pooled investment vehicle to either: “(1) make any untrue statement of a material fact
27 or to omit to state a material fact necessary to make the statements made, in light of the
1 circumstances under which they were made, not misleading, to any investor or prospective
2 investor in the pooled investment vehicle; or (2) otherwise engage in any act, practice, or course of
3 business that is fraudulent, deceptive, or manipulative with respect to any investor or prospective
4 investor in the pooled investment vehicle.” 17 C.F.R. § 275.206(4)-8(a). Accordingly, a violation
5 of Rule 206(4)-8(a) under Section 206(4) also requires the SEC to show defendants are advisers to
6 a “pooled investment vehicle,” or an entity, such as a fund, that defendants created to pool money
7 from multiple investors who purchase an interest in the fund and share in profits and losses
8 proportional to their interest in the fund. See 17 C.F.R. § 275.206(4)-8(b).
9 Because defendants are alleged to have made material misrepresentations in relation to the
10 offer and sale of securities as previously discussed, a prima facie showing of a Section 206(4) and
11 Rule 206(4)-8 violation depends on whether the SEC can show they are investment advisers to a
12 pooled investment vehicle. Here, the SEC has adequately demonstrated the existence of these two
13 conditions, and consequently, violations of Section 260(4) and Rule 206(4)-8. First, defendants
14 managed funds on behalf of investors for compensation. For example, the complaint notes that
15 Toltec Capital would receive half the net profits of the S&P 500 Fund it offered as joint venture
16 principal; as the sole owner of Toltec Capital, Mendia-Alcaraz also directly benefited from the
17 compensation that Toltec Capital received. Accordingly, defendants served as investment advisers
18 under Section 206. The fact that Mendia-Alcaraz misappropriated investor funds is irrelevant to
19 this determination. See JSG Cap. Investments, WL 3579570, at *7 (defendants remained
20 investment advisers under Section 206 even if they misappropriated investor funds for improper
21 purposes).
22 Second, the funds defendants advised were pooled investment vehicles. For example, with
23 respect to the Toltec Real Estate Funds offered by Toltec Capital, defendants represented investor
24 funds would be pooled with capital from Toltec Capital for the purpose of executing the fund’s
25 investment strategy. Accordingly, the Toltec Real Estate Funds constitute a pooled investment
26 vehicle within the meaning of Rule 206(4)-8.
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1 iv. Claim under Section 206(1) and 206(2)
2 Under Sections 206(1) and (2) of the Advisers Act, investment advisers are prohibited
3 from, “directly or indirectly,” “employ[ing] any device, scheme or artifice to defraud any client”
4 or “engag[ing] in any transaction, practice, or course of business which operates as a fraud or
5 deceit upon any client.” 15 U.S.C. § 80b-6(1) and (2); Vernazza v. SEC, 327 F.3d 851, 858 (9th
6 Cir. 2003). In essence, Sections 206 “imposes a fiduciary duty upon investment advisers to
7 exercise the utmost good faith in dealing with clients, to disclose all material facts to their clients,
8 and employ reasonable care to avoid misleading their clients.” SEC v. Sztrom, 538 F.Supp.3d
9 1050, 1056 (S.D. Cal. May 11, 2021) (citing SEC v. Cap. Gains Rsch. Bureau, Inc., 375 U.S. 180,
10 194 (1963)).
11 As discussed above, defendants served as investment advisers to the funds offered by
12 Toltec Capital. By misappropriating investor funds for Mendia-Alcaraz’s personal use or making
13 payments to other investors, they breached their fiduciary duty to their clients. Accordingly, the
14 SEC has adequately established a violation of Sections 206(1) and (2).
15
16 3. Money at Stake
17 The fourth factor “pertains to the amount of money at stake in relation to the seriousness of
18 [d]efendant’s conduct.” Although the SEC seeks over $5 million in disgorgement, interest, and
19 civil penalties, that sum is proportionate to the seriousness of the securities violations and the
20 resulting harm. Given the nature of the conduct alleged, presumed true, the civil penalties
21 assessed are appropriate to deter the violations at issue. See SEC. v. Clark, No. C 09-3423, 2010
22 WL 890247, at *2 (N.D. Cal. Mar. 8, 2010). Accordingly, while the substantial sum sought by the
23 SEC warrants caution, it does not preclude default judgment under all the circumstances here.
24
25 4. Possibility of Disputed Facts and Excusable Neglect
26 The fifth and sixth Eitel factors, concerning disputed facts and excusable neglect, weigh in
27 favor of default judgment. There is nothing suggesting significant disputes likely exist as to the
1 central and material facts about the alleged violations of the relevant securities laws. Additionally,
2 there is no indication defendants and relief defendants’ failure to participate in the litigation is due
3 to excusable neglect, particularly when the communications between the SEC’s counsel and
4 Mendia-Alcaraz clearly shows defendants and relief defendants were aware of this litigation, their
5 legal obligation to respond, and the default that was entered when they did not.
6
7 5. Resolution on the merits
8 The final Eitel factor acknowledges the general policy preference for resolution on the
9 merits, and will therefore always weigh against entry of a default judgment. Under all the
10 circumstances here, however, it is not a reason to deny the SEC’s motion. See, PepsiCo, Inc. v.
11 California Sec. Cans, 238 F. Supp.2d 1172, 1177 (C.D. Cal. Dec. 27, 2002) (A defendant’s failure
12 to appear, “makes a decision on the merits impractical, if not impossible.); Kloepping v. Fireman’s
13 Fund, No. 3:94-CV-02684, 1996 WL 75314, at *3 (N.D. Cal. Feb. 13, 1996) (“the preference to
14 decide cases on the merits does not preclude a court from granting default judgment.”)
15
16 C. Remedies
17 1. Injunctive Relief
18 The SEC seeks three forms of injunctive relief: (1) a judgment permanently enjoining
19 defendants from future violations of the securities laws allegedly violated in the complaint, (2) a
20 permanent injunction against Mendia-Alcaraz from serving as an officer or director of any
21 company that has securities registered with the SEC, and, (3) a permanent injunction against
22 Mendia-Alcaraz from participating, directly or indirectly, in the issuance, purchase, offer, or sale
23 of any securities, except for purchases or sales for his own personal accounts.
24 Section 20(b) of the Securities Act, Section 21(d)(1) of the Exchange Act, and Section
25 209(d) of the Advisers Act authorize the SEC to seek an injunction enjoining defendants from
26 future violations. See 15 U.S.C. §§ 77t(b), 78u(d)(1), 80b-9(d). To obtain such relief, the SEC
27 must establish that there is a reasonable likelihood of future violations. See Murphy, 626 F.2d at
1 655 (“The existence of past violations may give rise to an inference that there will be future
2 violations.”). In predicting the likelihood of future violations, relevant factors include: (1) the
3 degree of scienter involved; (2) the isolated or recurrent nature of the infraction; (3) the
4 defendant’s recognition of the wrongful nature of his conduct; (4) the likelihood, because of the
5 defendant’s professional occupation, that future violations might occur; and (5) the sincerity of the
6 defendant’s assurances against future violations. Id. Considering the recurrent nature of
7 defendants’ violations and the high degree of scienter involved, the SEC has adequately
8 established that future violations are likely, and that injunctive relief is warranted. See SEC v. C3
9 Int’l, Inc., et al., No. 8:21-CV-01586, 2022 WL 16814859, at *8 (C.D. Cal. Nov. 7, 2022). This
10 conclusion is buttressed by the fact that defendants’ failure to appear “precludes any assurances
11 against future violations and is evidence that [defendants] [do] not recognize the wrongful nature
12 of [their] conduct.” Id.
13 Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act authorizes a
14 court to prohibit any person who violates Section 17(a)(1) of the Securities Act or Section 10(b) of
15 the Exchange Act from serving as an officer or director of any issuer that has a class of securities
16 registered with the SEC. See 15 U.S.C. §§ 77t(e), 78u(d)(2). To obtain relief under these
17 provisions, the SEC must show that the person’s conduct demonstrates “unfitness” to serve as an
18 officer or director. See id. Relevant factors in determining the imposition of an officer and director
19 bar include “(1) the egregiousness of the underlying securities law violation; (2) the defendant’s
20 repeat offender status; (3) the defendant’s role or position when he engaged in the fraud; (4) the
21 defendant’s degree of scienter; (5) the defendant’s economic stake in the violation; and (6) the
22 likelihood that misconduct will recur.” SEC v. First Pac. Bancorp, 142 F.3d 1186, 1193 (9th Cir.
23 1998) (citation omitted). Accepting the SEC’s factual allegations as true, all of First Pac.
24 Bancorp’s enumerated factors are met. First, Mendia-Alcaraz’s conduct was egregious, given his
25 numerous false and misleading statements made to investors. Second, the conduct recurred over a
26 span of approximately four years. Third, as the owner and sole controller of Toltec Capital during
27 the alleged violations, Mendia-Alcaraz was the primary instigator and facilitator of the alleged
1 fraud. Fourth, Mendia-Alcaraz displayed a high degree of scienter through knowingly or
2 recklessly making false statements and misrepresentations to investors. Fifth, Mendia-Alcaraz
3 received direct financial benefits from his violations. Finally, as previously discussed, it appears
4 likely that Mendia-Alcaraz may commit future violations absent judicial intervention.
5 Accordingly, the imposition of an officer and director bar is warranted.
6 Finally, federal courts possess inherent equitable authority to issue a conduct-based
7 injunction not explicitly authorized by statute to prohibit Mendia-Alcaraz from participating in the
8 issuance, purchase, offer, or sale of any securities, except for purchases or sales for his own
9 personal accounts. See SEC v. Wencke, 622 F.2d 1363, 1369 (9th Cir. 1980). Such an injunction,
10 however, must be narrowly tailored to prevent future violations of federal securities laws. Toyota
11 Motor Sales, U.S.A., Inc. v. Tabari, 610 F.3d 1171, 1176 (9th Cir. 2010). As previously discussed,
12 the SEC has shown a high likelihood that Mendia-Alcaraz will engage in future violations of
13 federal securities laws and a number of courts have entered comparable injunctions against
14 similarly situated defendants. See e.g., JSG Cap. Investments, WL 3579570, at *10; SEC v. Sethi
15 Petroleum, LLC, No. 4:15-CV-338, 2015 WL 4040123, at *1 (E.D. Tex. Jul. 1, 2015). In light of
16 the nature of Mendia-Alcaraz’s alleged conduct in this case, the SEC’s requested conduct-based
17 injunction is warranted.
18
19 2. Disgorgement from Defendants
20 Courts possess both statutory authority under the Exchange Act, as well as broad equity
21 powers to order disgorgement in SEC enforcement actions. See 15 U.S.C. §§ 78u(d)(3), (d)(5),
22 (d)(7); First Pac. Bancorp, 142 F.3d at 1191. Further, “where two or more individuals or entities
23 collaborate or have a close relationship in engaging in the violations of the securities laws, they
24 [may be] held jointly and severally liable for the disgorgement of illegally obtained proceeds.” Id.
25 Because disgorgement is intended to “deprive a wrongdoer of unjust enrichment, and or deter
26 others from violating securities laws . . . ‘[t]he amount of disgorgement should include all gains
27 flowing from the illegal activities.’” Platforms Wireless, 617 F.3d at 1096 (citing First Pac.
1 Bancorp, 142 F.3d at 1191). The disgorgement amount need be “only a reasonable approximation
2 of the profits casually connected to the violation.” Id. Finally, where disgorgement is imposed, a
3 court may also impose prejudgment interest “to ensure that the wrongdoer does not profit from the
4 illegal activity.” SEC v. C3 Int’l, Inc., No. 8:21-CV-01586, 2024 WL 3465615, at *10 (C.D. Cal.
5 Jul. 17, 2024) (citing SEC v. Cross Financial Services, Inc., 908 F. Supp. 718, 734 (C.D. Cal.
6 1995). In calculating prejudgment interest, the SEC may rely on the Internal Revenue Service
7 underpayment rate set forth in 26 U.S.C § 6621(a)(2). See Platforms Wireless, 617 F.3d at 1099-
8 1100.
9 Here, the SEC seeks disgorgement from defendants, jointly and severally, in the amount of
10 $2,207,524, and prejudgment interest of $150,866. The SEC’s calculation of the appropriate
11 disgorgement is based on evidence assessed by SEC accountant Zachary Scrima. The SEC
12 contends defendants received a total of $3,341,025 in investor funds through their fraudulent
13 activities, from which $1,133,500 was paid out to investors. The SEC’s evidence thus establishes
14 $2,207,524 as a reasonable approximation of the “gains flowing from the illegal activities” and is
15 a suitable basis for disgorgement. See Platforms Wireless, 617 F.3d at 1096.
16 In conjunction with its request for disgorgement, the SEC also requests prejudgment
17 interest from October 1, 2023 (the first day of the month following the last day that investor
18 funding was received), through July 31, 2024 (the last day of the month preceding the
19 commencement of this case), in the amount of $150,866, based on the prejudgment interest rate set
20 forth at 26 U.S.C. § 6621(a)(2). The SEC’s calculations appear correct and prejudgment interest in
21 the amount of $150,866 is appropriate.
22
23 3. Disgorgement from Relief Defendants
24 In addition to ordering disgorgement from a liability defendant, a court may exercise
25 equity powers “to order disgorgement from non-violating third parties,’ or relief defendants, ‘who
26 have received proceeds of others’ violations to which the third parties have no legitimate claim.’”
27 SEC v. Beck, No. 2:22-CV-008212, 2024 WL 1626280, at *15 (quoting SEC v. World Cap. Mkt.,
1 Inc., 864 F.3d 996, 1003-04 (9th Cir. 2017)). To obtain disgorgement from a relief defendant, the
2 SEC must show that the relief defendant: (1) received ill-gotten funds and (2) does not have a
3 legitimate claim to those funds. Id. A relief defendant may also be held jointly and severally liable
4 with a liability defendant for disgorgement and prejudgment interest. See id.
5 Here, the SEC seeks disgorgement from Ramirez Cano, jointly and severally liable with
6 Defendants, for disgorgement of $3,654 with prejudgment interest of $249. Based on the evidence
7 submitted by the SEC, this amount represents investor funds that Mendia-Alcaraz transferred to a
8 personal account he co-owned with Ramirez Cano and that Ramirez Cano spent. Prejudgment
9 interest was also calculated based on the method previously discussed. Because Ramirez Cano
10 received funds through fraud perpetrated by Mendia-Alcaraz and because she lacks a legitimate
11 claim to these funds, disgorgement and prejudgment interest in the amount of $3,654 and $249 is
12 appropriate. Similarly, the SEC has adequately shown relief defendant Fondo Toltec is jointly and
13 severally liable with defendants for disgorgement of $554,563, plus prejudgment interest of
14 $37,899.
15
4. Civil Monetary Penalties
16
The Securities Act, Exchange Act, and the Advisers Act authorize courts to assess civil
17
penalties for violations of those statutes and the rules thereunder. See 15 U.S.C. §§ 77t(d),
18
78u(d)(3), 80b-9(e). “The purpose of imposing monetary penalties in addition to disgorgement of
19
profits is to punish the violator as well as deter future violations of the securities laws.” JSG Cap.
20
Investments, WL 3579570, at *12 (citing SEC v. Moran, 944 F.Supp. 286, 296 (S.D.N.Y. 1996).
21
In authorizing the imposition of monetary penalties, Congress established a three-tiered system,
22
each enumerating a specific penalty amount for each violation of the securities laws, to guide
23
courts in determining the appropriate penalty amount. See 15 U.S.C. §§ 77t(d)(2), 78u(d)(3); 17
24
C.F.R. § 201.1004. Alternatively, a court may also impose a penalty up to “the gross amount of
25
pecuniary gain to [the] defendant as a result of the violation,” regardless of the tier. 15 U.S.C. §§
26
77t(d)(2), 78u(d)(3). Within the confines of those maximum limits, the amount of the penalty is at
27
1 the discretion of the court, to be determined “‘in light of the facts and circumstances” of the case.
2 15 U.S.C. §§ 77t(d)(2)(A), 78u(d)(3)(B)(i).
3 Here, the SEC seeks the imposition of civil monetary penalties against Mendia-Alcaraz in
4 the amount of $2,207,524. The egregious nature of Mendia-Alcaraz’s conduct in this case resulted
5 in substantial losses to the investors and warrants the imposition of third-tier penalties. Mendia-
6 || Alcaraz defrauded investors over several years through numerous false and misleading statements
7 and the misappropriation of funds. Additionally, Mendia-Alcaraz’s failure to respond to the
8 complaint, despite being aware of this litigation, evinces no acceptance of responsibility nor
9 || assurances against future violations. See C3 Int’l, Inc., 2022 WL 16814859, at *8. Accordingly,
10. || the imposition of a civil penalty equal to Mendia-Alcaraz’s disgorgement amount of $2,207,524 is
11 appropriate to punish Mendia-Alcaraz and deter future violations of the securities laws.
13 CONCLUSION
3 15 For the foregoing reasons, the SEC’s motion for entry of default judgment is granted. The
z 16 || SEC’s proposed form of judgment will be entered separately.
19 || ITISSO ORDERED.
20
21 Dated: December 16, 2025
22
RICHARD SEEBORG
23 Chief United States District Judge
24
25
26
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CASE No. 24-cv-05823-RS