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Securities & Exchange Commission v. Ahmed

United States District Court, D. Connecticut

August 12, 2015

IFTIKAR AHMED, et al., Defendants

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          For United States Securities and Exchange Commission, Plaintiff: John B. Hughes, LEAD ATTORNEY, U.S. Attorney's Office-NH, New Haven, CT; Nicholas Peter Heinke, LEAD ATTORNEY, PRO HAC VICE, U.S. Securities and Exchange Commission - CO, Denver, CO; Mark Lander Williams, U.S. Securities and Exchange Commission - CO, Denver, CO.

         For Iftikar Ahmed, Defendant: Alex Lipman, Ashley L. Baynham, LEAD ATTORNEYS, PRO HAC VICE, Brown Rudnick LLP - NY, New York, NY; Dylan P. Kletter, Brown Rudnick LLP - Htfd, Hartford, CT.

         Iftikar Ali Ahmed Sole Prop, Defendant, Pro se.

         For I-Cubed Domains, LLC, Shalini Ahmed, Shalini Ahmed 2014 Grantor Retained Annunity Trust, DIYA Holdings LLC, DIYA Real Holdings, LLC, I.I. 1, A minor child, by and through his next friends Iftikar and Shalini Ahmed, his parents, I.I. 2, A minor child, by and through his next friends Iftikar and Shalini Ahmed, his parents, I.I. 3, A minor child, by and through his next friends Iftikar and Shalini Ahmed, his parents, Defendants: Alexander Sakin, David B. Deitch, Jonathan Harris, L. Reid Skibell, Priya Chaudhry, LEAD ATTORNEYS, PRO HAC VICE, Harris, O'Brien, St. Laurent & Chaudhry, LLP, New York, NY; Kristen Luise Zaehringer, Paul E. Knag, Murtha Cullina, LLP-Stmfd, Stamford, CT.

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         Janet Bond Arterton, United States District Judge.

         Plaintiff the United States Securities and Exchange Commission (the " Commission" or " SEC" ) moves [Doc. # 29] for a preliminary injunction continuing the temporary restraining order [Doc. # 24] freezing assets of Defendant and Relief Defendants (" Asset Freeze Order" ). On July 23 and 30, 2015, the Court conducted a hearing on the Commission's motion for preliminary injunction, during which it heard arguments of counsel and received evidence. For the reasons that follow, the Commission's motion is granted.

         I. Background

         A. Facts Alleged

         As set forth in the record considered by the Court in issuing the Asset Freeze Order, Defendant Ahmed is alleged to have engaged in a decade-long fraud that resulted in the misappropriation of tens of millions of dollars from his former employer Oak Management Corporation (" Oak" ) and its investors. Among other tactics, Defendant is alleged to have misrepresented the price of an investment he advised Oak to make; fraudulently used invoices purportedly related to Oak's purchase or sale of a company's shares; and engaged in self-dealing by misrepresenting or concealing his personal stake as the counterparty in various transactions that he entered into on behalf of Oak. In each case, Mr. Ahmed allegedly funneled the illicit proceeds into accounts at Bank of America that he claimed belonged to parties to the deals, but which in fact he opened and secretly controlled. His ill-gotten gains are alleged to have totaled $65 million. ( See Am. Compl. [Doc. # 33]; Declarations of Grace Ames (" First Ames Declaration" [Doc. #4] and " Second Ames Declaration [Doc. # 31]" ); Am. Mot. for Prelim. Inj.)

         B. Procedural Background

         On May 6, 2015, the SEC filed [Doc. # 2] an emergency motion for an ex parte temporary restraining order freezing assets and for a preliminary injunction continuing that asset freeze for the pendency of this litigation. On May 7, 2015, after conducting an ex parte telephonic hearing on the record, the Court issued [Doc. # 9] a temporary restraining order freezing assets, providing for other ancillary relief, and setting this matter for a preliminary injunction hearing. On May 18, 2015, the Commission and Mr. Ahmed entered into a stipulation [Doc. #21], approved [Doc. #22] by the Court, providing that all assets held by him or under his direct or indirect control, whether held in his name or for his direct or indirect beneficial interest, would remain frozen until the Court's ruling on the Commission's Motion for a Preliminary Injunction.

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          Mr. Ahmed is believed to have fled the United States around the same time that he entered into this stipulation.[1] On June 12, 2015, the Commission filed its Amended Complaint and Motion for a Preliminary Injunction based on newly-alleged misconduct by Defendant Iftikar Ahmed. In its Amended Complaint, the Commission also named several additional relief defendants, including Defendant's wife, Shalini Ahmed. The Court subsequently ordered [Doc. # 34] expedited discovery and set this matter for a preliminary injunction hearing, which took place on July 23 and 30, 2015 with the SEC, Mrs. Ahmed, and certain other relief defendants participating.[2]

         On August 3, 2015, Mr. and Mrs. Ahmed were charged in a criminal case--the second for Mr. Ahmed--with conspiracy to commit money laundering in violation of 18 U.S.C. § § 1956(h) and 1957 related to the alleged fraud in this case. See Case No. 15-mj-2161-MBB (D. Mass.).

         C. Preliminary Injunction Hearing

         The SEC seeks to freeze assets up to $118 million to account for approximately $65 million in illicit profits to be disgorged plus prejudgment interest ($9.3 million) and civil penalties ($44 million). The SEC has located and claimed to be subject to the Court's Asset Freeze Order approximately $47 million dollars in liquid assets, real estate worth approximately $20 million, and " certain other non-liquid assets that are difficult to value." (SEC Post Hr'g Br. [Doc. # 98] at 7 & n.4.)

         Of the nineteen transactions alleged to be fraudulent in the Commission's Amended Complaint, Relief Defendants challenged only one at the preliminary injunction hearing: the October 2014 sale of " Company C" shares from I-Cubed to Oak for $7.5 million. Additionally, Relief Defendants argued that additional unfrozen funds in Mr. Ahmed's " carried interest account" at Oak are available to satisfy any judgment against Defendant and that certain assets frozen should be unfrozen.

         As to the Company C transaction, the evidence presented at the hearing largely confirmed the record presented to the Court when it issued the temporary restraining order. In October 2013, based on Mr. Ahmed's recommendation, Oak invested $25 million to purchase shares in Company C, Before consummating the investment, Grace Ames, Oak's Chief Operating Officer, asked Mr. Ahmed whether he " invest[ed] in [Company C] prior to Oak's contemplated investment" and Mr. Ahmed responded " I have NO personal investment or any direct beneficial interest of investment in [Company C]." (Hearing Ex. 2 & First Ames Decl. Ex. 18.) Mr. Ahmed did not disclose that a year earlier,

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in October 2012, he had formed an entity called I-Cubed and shortly thereafter purchased shares in Company C through I-Cubed. (Hearing Ex. 5; First Ames Deck ¶ 29.b & Ex. 21.) In May 2013, shortly before Oak made its initial investment in Company C, Mr. Ahmed transferred his interest in I-Cubed to his wife. (First Ames Decl. ¶ 29.d.)

         In October 2014, Mr. Ahmed recommended that Oak make an additional $7.5 million investment in Company C shares held by I-Cubed, which Mr. Ahmed described as a " family office," but Mr. Ahmed did not disclose that he had transferred his interest in I-Cubed to Mrs. Ahmed. ( Id. ¶ 26.) Mr. Ahmed signed a Stock Purchase Agreement on behalf of Oak purchasing the $7.5 million of additional shares from I-Cubed. ( Id. Ex. 19.) Richard N. Kimball, a Boston attorney, signed on behalf of I-Cubed. ( Id. ) However, Mr. Kimball had resigned as I-Cubed's initial manager one month prior. ( Id. Ex. 22.) The SEC represents that Mr. Kimball has confirmed that his signature was forged in the Stock Purchase Agreement. (SEC Post Hr'g Br. at 12 & n.7.) Mr. Ahmed then directed Oak to wire the $7.5 million payment to a Bank of America account held solely in his name, which he had opened just days prior. (Hearing Ex. 4 & Ames First Deck Ex. 20 (wiring instructions); Hearing Ex. 6 & Oraker Decl. [Doc. #68] Ex. 1 at SEC-BOA-00001189-1192 (account opening documents).) Mr. Ahmed then transferred this $7.5 million into the names of certain Relief Defendants by writing checks from the I-Cubed Bank of America account to Mrs. Ahmed and the Shalini Ahmed GRAT.[3] (Oraker Decl. ¶ ¶ 23, 32 & Exs. 15, 17, 19.)

         Mr. Ahmed's private email communications reveal that he had significant concerns about the viability of Company C days before executing the October 2014 purchase on Oak's behalf, emailing another investor about the " flat to down year" Company C was having, saying it was a " non-starter" for Oak to invest additional money in Company C, and stating that he would get his " a** handed to [him]" if he approached Oak about such an investment, (Hearing Ex. K.) Mr. Ahmed did not disclose these concerns to Oak at the time he advised Oak to buy Company C shares from I-Cubed (Hearing: Tr. at 283), nor did he disclose that the same shares Oak purchased for $7.5 million had been valued at only $876,193.72 two months earlier. (Hearing Ex. 8 at Shalini Ahmed_00000881 & Hearing Tr. at 304-05.)

         II. Discussion

         The Securities Act of 1933 and the Securities and Exchange Act of 1934 pursuant to which the SEC has brought this action, authorize it to bring civil actions " to enjoin [unlawful] acts or practices, and upon a proper showing, a permanent or temporary injunction or restraining order shall be granted without bond." 15 U.S.C. § 77t(b); 15 U.S.C. § 78u(d)(1) (same). Injunctions sought by the SEC " do not require a showing of irreparable harm or the unavailability of remedies at law," but rather " the SEC need only make 'a substantial showing of likelihood of success as to both a current violation and the risk of repetition.'" Smith v. S.E.C., 653 F.3d 121, 127-28 (2d Cir. 2011) (quoting SEC v. Cavanagh, 155 F.3d 129, 132 (2d Cir. 1998)). A less stringent standard applies when the SEC seeks to freeze assets, requiring it only to " show either a likelihood ...

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