SEC v Big Apple Et Al Doc 169 Filed 21 Feb 12

UNITED STATES DISTRICT COURT FOR THEMIDDLE DISTRICT OF FLORIDAORLANDO DIVISION

)SECURITIES AND EXCHANGE )COMMISSION, )

)Plaintiff, )

) CASE NO. 09-cv-1963-Orl-28GJKv. )

)BIG APPLE CONSULTING USA, )INC., et al., )

)Defendants )

)

PLAINTIFF’S MEMORANDUM IN OPPOSITION TO DEFENDANT KEITHJABLON’S REQUEST TO HAVE THE JURY VERDICT OVERTURNED

BASED ON FEDERAL RULE OF CIVIL PROCEDURE 50

Of Counsel Jeffrey T. Infelise Thomas A. Sporkin Assistant Chief Litigation CounselDavid R. Herman D.C. Bar No. 456998

Lead and Trial Counsel Duane K. ThompsonAssistant Chief Litigation Counsel100 F Street, N.E. Washington, DC 20549-4010

February 21, 2012 Attorneys for Plaintiff, Securities and Exchange Commission

Case 6:09-cv-01963-JA-GJK Document 169 Filed 02/21/12 of 25 PageID 5242

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TABLE OF CONTENTS

TABLE OF AUTHORITIES ........................................................................................................ ii

ARGUMENT ................................................................................................................................. 1

SUMMARY OF ARGUMENT ..................................................................................................... 1

MEMORANDUM OF LAW ......................................................................................................... 5

I. BACKGROUND ............................................................................................................... 5

II. ARGUMENT ..................................................................................................................... 7

A. Standards For Rule 50 and Rule 59 Motions ......................................................... 7

B. There Was A Legally Sufficient Basis For the Jury’s Verdict Against K.Jablon ..................................................................................................................... 9

1. K. Jablon May Be Held Liable For His Role In The Fraudulent SchemeInitiated by Plant ...................................................................................... 10

2. The Evidence Presented Provided A Legally Sufficient Basis For The Jury To Conclude That K. Jablon Acted With Scienter ................... 13

C. The Evidence Presented Warranted Instructing The Jury OnDeliberate Ignorance ............................................................................................ 18

CONCLUSION ............................................................................................................................ 19


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TABLE OF AUTHORITIES

FEDERAL CASES

Beach-Mathura v. American Airlines, Inc., No. 08-21925-civ, 2010 WL 1038563 (S.D. Fla Mar. 19, 2010) .......................................................................... 9

Brown v. Alabama Department of Transp., 597 F.3d 1160 (11th Cir. 2010) ................... 8

Chaney v. City of Orlando, Fl., 483 F.3d 1221 (11th Cir. 2007) ...................................... 8

Garcia v. Reed, 227 F. Supp. 2d 1183 (D.N.M. 2002) ................................................... 19

Lippardt v. Durango Steakhouse of Brandon, Inc., 267 F.3d 1183 (11th Cir.2001) ............................................................................................................. 8

Mahaffey v. Ramos, 588 F.3d 1142 (7th Cir. 2009) ....................................................... 18

Mee Industrial v. Dow Chemical Co., 608 F.3d 1202 (11th Cir. 2010) ........................... 8

Montgomery Ward & Co. v. Duncan, 311 U.S. 243 (1940) ............................................. 9

Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133 (2000) ..................... 7, 8, 18

SEC v. Huff, 758 F. Supp. 2d 1288 (S.D. Fla. 2010), aff'd 2012 WL10862(11th Cir. 2012) (per curiam) .................................................................................... 16

SEC v. Monterosso, 678 F. Supp. 2d 1244 (S.D. Fla. 2011) .......................................... 10

SEC v. U.S. Envtl., 155 F.3d 107 (2d. Cir. 1988) .......................................................... 10

Swanigan v. Trotter, 645 F. Supp. 2d 656 (N.D. Ill. 2009) ............................................ 18

United States v. Amerson, 185 F.3d 676 (7th Cir. 1999) ............................................... 19

United States v. Gruenberg, 989 F.2d 971 (8th Cir. 1993) ............................................. 10

United States v. Honea, 660 F.3d 318 (8th Cir. 2011) .............................................. 16, 17

United States v. Hristov, 466 F.3d 949 (11th Cir. 2006) ................................................ 16

United States v. Persky, 520 F.2d 283 (2d Cir. 1975) .................................................... 10

Woodward v. Metropolitan Bank of Dallas, 522 F.2d 84 (5th Cir. 1975) ...................... 10


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FEDERAL STATUTES AND RULES

Securities Act Section 5 (a) and (c)……….....[15 U.S.C. § 77e(a) and (c)] ............................................ 5

Section 17(a)........................... [15 U.S.C.§ 77q(a)] ................................................. 5, 9, 10 Section 17(a)(1).......................[15 U.S.C.§ 77q(a)(1)] ................................................... 6, 9

Section 17(a)(2).......................[15 U.S.C.§ 77q(a)(2)] ....................................................... 6Section 17(a)(3).......................[15 U.S.C.§ 77q(a)(3)] ....................................................... 6

Exchange Act Section 15(a) ………………....[15 U.S.C. § 78o(a)] ....................................................... 5 Section 10(b)……………….…[15 U.S.C. § 78j(b)] ...................................................... 5, 6 Section 20(a)………………….[15 U.S.C. § 78t(a)] .......................................................... 5 Section 20(e)………………….[15 U.S.C. § 78t] ...................................................... 6, 11 Rule 10b-5………………….....[17 C.F.R. § 240.10b-5] ................................................. 6 Rule 10b-5(a)……………….....[17 C.F.R. § 240.10b-5(a)] .......................................... 10

Fed. R. Civ. P. Rule 50 ................................................................................................................................ 7 Rule 50(a) ...................................................................................................................... 8, 19 Rule 50(b) ........................................................................................................................... 8 Rule 59 ................................................................................................................................ 8


UNITED STATES DISTRICT COURT FOR THEMIDDLE DISTRICT OF FLORIDAORLANDO DIVISION

)SECURITIES AND EXCHANGE )COMMISSION, )

)Plaintiff, )

) CASE NO. 09-cv-1963-Orl-28GJKv. )

)BIG APPLE CONSULTING USA, )INC., et al., )

)Defendants )

)

PLAINTIFF’S MEMORANDUM IN OPPOSITION TO DEFENDANT KEITHJABLON’S REQUEST TO HAVE THE JURY VERDICT OVERTURNED

BASED ON FEDERAL RULE OF CIVIL PROCEDURE 50

Pursuant to Rule 7 of the Federal Rules of Civil Procedure and Local Rule 3.01(b),

plaintiff, the Securities and Exchange Commission (the “Commission”), submits its

Memorandum in Opposition to Defendant Keith Jablon’s Pro Se Request for Judgment as a

Matter of Law pursuant to Rule 50 of the Federal Rules of Civil Procedure.

ARGUMENT

SUMMARY OF ARGUMENT

The Court specifically restricted the defendants’ written motion pursuant to Rule 50

(“Rule’) of the Federal Rules of Civil Procedure to the issue of the appropriateness of the

deliberate ignorance instruction. Dkt. No. 139. However, Keith Jablon’s memorandum in

support of his motion is devoted almost entirely to attacking the legal sufficiency of the

evidence against him. Because these arguments violate the specific limitations the Court


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placed on the defendants’ written motion pursuant to Rule 50, the Court should refuse to

consider Keith Jablon’s arguments concerning the sufficiency of the evidence. However, to

the extent the Court agrees to consider these arguments, this memorandum in opposition

includes the Commission’s responses to Keith Jablon’s claims that the evidence was legally

insufficient to support the verdict against him.

Keith Jablon’s (“K. Jablon”) argument that he could not be found to have violated

Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 20(e) of the

Securities Exchange Act of 1934 (“Exchange Act”) because James Plant (“Plant”), not he,

was responsible for the content of the press releases issued by CyberKey Solutions, Inc.,

(“CyberKey”) concerning the DHS purchase order misapprehends the nature of the claims

against him and the law relating to those claims. K. Jablon’s liability for violating Section

17(a) of the Securities Act and Section 20(e) of the Exchange Act does not depend on

whether Plant was ultimately responsible for the content of CyberKey’s press releases.

Rather, the issue is whether K. Jablon is liable because of the actions he took in furtherance

of that scheme.

The undisputed evidence established that K. Jablon, as vice president of Management

Solutions, Inc. (“MSI”), played a significant role in the fraudulent scheme. The evidence

established that MSI drafted press releases for CyberKey on a weekly basis and all the press

releases issued by CyberKey directed anyone with questions to contact the investor relations

department at Big Apple Consulting USA, Inc. (“Big Apple”). The evidence also

demonstrated that K. Jablon was directly responsible for drafting the press releases


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concerning the alleged purchase order from the Military Post Exchange that transformed into

the fictitious purchase order from the Department of Homeland Security (“DHS”) and that he

provided specific guidance to Plant on when to issue CyberKey’s press releases so the press

releases could be used that same day to market CyberKey stock to broker/dealers. Further,

the evidence demonstrated K. Jablon provided Plant specific guidance on what to include in

the press releases concerning the DHS purchase. Finally, the evidence revealed that on at

least one occasion K. Jablon directed individuals who worked in the investor relations

department on how to respond to inquiries from investors claiming that DHS said it had no

record of a purchase order issued to CyberKey.

Based on the undisputed evidence presented at trial, a reasonable juror could conclude

that K. Jablon played a substantial role in the fraudulent scheme and that he provided

substantial assistance to CyberKey and Plant in conducting his fraudulent scheme.

K. Jablon’s argument that even if he had any responsibility to ensure the accuracy of

the press releases, he did not have actual knowledge of, and was not severely reckless in not

knowing, the DHS purchase order was fictitious is contrary to overwhelming weight of the

evidence introduced at trial. First, the undisputed evidence established that in October and

November of 2005, K. Jablon prepared and forwarded to Plant three different drafts of a press

release announcing that CyberKey had received a multi-million purchase order from the

Military Post Exchange. On November 11, 2005, only four hours after K. Jablon provided

Plant a draft of a press release announcing that CyberKey had received a purchase order from

the Military Post Exchange, K. Jablon forwarded another draft press release announcing that


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CyberKey had received a $24.49 million purchase order from DHS.

Further, the undisputed evidence demonstrated that by the Spring of 2006, K. Jablon

actually had doubts about the validity of Plant’s claims of contracts with various companies

including the Military Post Exchange and that, when he drafted the “Broken Promises” memo

on July 13, 2006, he had questions about Plant’s reliability.

K. Jablon admitted he was aware of the DHS inquiry on the same day it was received

by Big Apple, and admitted that although Plant said he had taken care of the issue with DHS,

K. Jablon had questions about whether Plant had really done as he said. Nevertheless, K.

Jablon never followed up with DHS to determine if their questions had been answered. Also,

K. Jablon did not send a copy of the DHS purchase order he claimed to have received from

Plant to DHS and admitted that if he had done so, he would have found out in a few days that

it was fraudulent.

There also was uncontroverted evidence introduced that even after the August 8, 2006

inquiry from DHS, K. Jablon received additional information that would lead a reasonable

juror to conclude that K. Jablon actually knew or was severely reckless in not knowing that

the DHS purchase order was fictitious including the fact that despite repeated efforts, K.

Jablon was unable to verify that CyberKey actually received a second payment from DHS.

A reasonable juror could conclude from this evidence that K. Jablon actually knew

the DHS purchase order was fictitious, intentionally closed his eyes to information that would

have established conclusively that it was fictitious, or was severely reckless in not knowing.

Therefore, the jury’s verdict was consistent with the great weight of evidence presented and


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K. Jablon’s motion for judgment as a matter of law or, in the alternative, for a new trial,

should be denied.

MEMORANDUM OF LAW

I. BACKGROUND

On November 18, 2009, the Commission filed its complaint against defendants Big

Apple, MJMM Investments, LLC (“MJMM”), Marc Jablon, Matthew Maguire (“Maguire”),

Mark C. Kaley (“Kaley”) and K. Jablon. Dkt. No. 1. That complaint was based upon the

defendants’ role in the fraud perpetrated by Plant and CyberKey from about November 2005

to about March 2007. The fraud involved an elaborate scheme to publicize a fictitious $25

million purchase order from the DHS. Dkt. No. 1, ¶ 1.

That complaint alleged that all the defendants violated Section 17(a) of the Securities

Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Dkt. No. 1. It also

alleged that Big Apple, MJMM, Marc Jablon and Maguire violated Section 5(a) and (c) of the

Securities Act and that Big Apple and MJMM were unregistered brokers and dealers in

violation of Section 15(a) of the Exchange Act. Finally, the complaint alleged that Marc

Jablon, Maguire and Kaley violated Section 20(a) of the Exchange Act by aiding and abetting

Big Apple’s and MJMM’s violation of Section 15(a) of the Exchange Act. Id.

On March 29, 2011, the Commission filed a motion for partial summary judgment

with respect to: the Section 5(a) and (c) claims against Big Apple, MJMM, Marc Jablon and

Maguire; the Section 15(a) claims against Big Apple and MJMM; and the Section 20(a)

claims against Marc Jablon, Maguire and Kaley. Dkt. No. 62.


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On July 28, 2011, the Commission requested leave to amend its complaint to: (a)

include a claim that all the defendants violated Section 20(e) of the Exchange Act by aiding

and abetting the violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder

by CyberKey and Plant; and (b) to withdraw its claims that all the defendants directly

violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Dkt. No. 83. On

August 25, 2011, the Court granted the Commission’s motion. Dkt. No. 92. On that same

date the Court granted the Commission’s motion for partial summary judgment. Dkt. No. 91.

Trial on the claims that all the defendants violated Section 17(a) of the Securities Act

and Section 20(a) of the Exchange Act commenced on January 9, 2012 and both parties

rested on January 17, 2012. Dkt. No. 17. On January 18, 2012, the Court provided

instructions to the jury. Dkt. No. 136. The Court’s instructions concerning Section 17(a)(1)

and Section 20(e) included the following instruction on “deliberate ignorance”:

Additionally, the SEC may prove a Defendant acted knowingly or recklesslyby proving, by a preponderance of the evidence, that a Defendant deliberatelyclosed his eyes to what would otherwise have been obvious to him. No onecan avoid liability under the securities laws by deliberately ignoring what isobvious. You may infer knowledge of the existence of a fact if a Defendantwas aware of a high probability of the existence of that fact and purposelycontrived to avoid learning all the facts. If you find by a preponderance of theevidence that a Defendant intentionally avoided knowledge or enlightenment,you may find that Defendant acted knowingly or recklessly.

Exh. A at pp. 26, 36-37 (Dkt. No. 138). On January 19, 2012, the jury returned a verdict in

favor of the Commission, finding all the defendants violated Section 17(a)(1), (2) and (3) of

the Securities Act and that all the defendants violated Section 20(e) of the Exchange Act .

Exh. B (Dkt. No. 140). In response to specific interrogatories concerning the Section 20(e)


“Def. Mem. at __,” refers to Defendant Keith Jablon’s Pro Se Request for judgment as 1

a matter of law pursuant to Rule 50 of the Federal Rules of Civil Procedure.

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claims, the jury found that all the defendants acted both with actual knowledge and with

severe recklessness. Id. at ¶¶ 5, 10, 15, 20, 25, and 30. On that same day, the Court informed

all the defendants that they would be permitted to file a Written Motion for Judgment as a

Matter of Law regarding the “deliberate ignorance” instruction that did not exceed 20 pages.

Dkt. No. 139.

On February 1, 2012, Carl F. Schoeppl filed a motion to withdraw as attorney for

defendants, Keith Jablon, Kaley and Matthew Maguire. Dkt. No. 144. On February 2, 2012,

K. Jablon filed his Pro Se Motion for Judgment as a Matter of Law. Dkt. No. 146. Although

K. Jablon only cites Rule 50 of the Federal Rules of Civil Procedure as the basis for his

motion, he has requested that, in the alternative to granting judgment for him, as a matter of

law, the Court should grant him a new trial. Def. Mem. at 2. Therefore, the Commission1

will assume that K. Jablon’s motion also is for a new trial pursuant to Rule 59.

II. ARGUMENT

A. Standards For Rule 50 and Rule 59 Motions

“Under Rule 50, a court should render judgment as a matter of law when ‘a party has

been fully heard on an issue and there is no legally sufficient evidentiary basis for a

reasonable jury to find for that party on that issue.’” Reeves v. Sanderson Plumbing

Products, Inc., 530 U.S. 133, 149 (2000). When entertaining a Rule 50 motion this Court

should review all the evidence of record and “must draw all reasonable inferences in favor of


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the non-moving party, and it may not make credibility determinations or weigh the evidence.”

Id. at 150. Further, this Court should “disregard all evidence favorable to the moving party

that the jury is not required to believe.” Id. at 151. In other words, this Court should “give

credence to the evidence favoring the nonmovant as well as that ‘evidence supporting the

moving party that is uncontradicted and unimpeached, at least to the extent that evidence

comes from disinterested witnesses.’” Id.

A Rule 50 motion should be denied “if reasonable and fair-minded persons exercising

impartial judgment might reach different conclusions.” Mee Indus. v. Dow Chem. Co., 608

F.3d 1202, 121 (11th Cir. 2010). Consequently, “judgment as a matter of law is appropriate

only if ‘the facts and inferences point [so] overwhelmingly in favor of one party . . . that

reasonable people could not arrive at a contrary verdict.’” Brown v. Alabama Dept. of

Transp., 597 F.3d 1160, 1173 (11th Cir. 2010).

Under Rule 59, a party may seek a new trial on the grounds “that the verdict is against

the weight of the evidence, that the damages are excessive, or that, for other reasons, the trial

was not fair to the party moving; and may raise questions of law arising out of alleged

substantial errors in admission or rejection of evidence or instructions to the jury.”

Montgomery Ward & Co. v. Duncan, 311 U.S. 243, 251 (1940). A motion for a new trial

should not be granted on evidentiary grounds “unless, at a minimum the verdict is against the

great–not merely the greater–weight of the evidence.” Lippardt v. Durango Steakhouse of

Brandon, Inc., 267 F.3d 1183, 1186 (11th Cir. 2001) (quoting Hewitt v. B.F. Goodrich Co.,

732 F.2d 1554, 1556 (11th Cir. 1984)). Where there is conflicting testimony and a jury must


In his memorandum in support of his motion, K. Jablon repeats, verbatim, the same 2

two arguments with respect to each of the Section 17(a) claims and the Section 20(e) claim. Therefore, the Commission’s argument is intended as a response to the arguments K. Jablon makes with respect to all the claims against him.

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make credibility determinations, “a jury verdict should not be disturbed if there is some

support for the jury’s decision.” Beach-Mathura v. American Airlines, Inc., No. 08-21925-

civ, 2010 WL 1038563 (S.D. Fla. Mar. 19, 2010) (citing Quick v. City of Birmingham, 346

Fed. Appx. 494, 495 (11th Cir. 2009)).

B. There Was A Legally Sufficient Basis For the Jury’s Verdict Against K.Jablon

The basis of K. Jablon’s motion for judgment as a matter of law is not entirely clear.

However, it appears he makes two arguments. First, K. Jablon appears to argue that he could

not be found to have violated Section 17(a) of the Securities Act and Section 20(e) of the

Exchange Act because Plant, not he, was responsible for the content of the press releases

issued by CyberKey concerning the DHS purchase order. Def. Mem. at 4. Second, K. Jablon

appears to argue that even if he had any responsibility to ensure the accuracy of the press

releases, he did not have actual knowledge that the DHS purchase order was fictitious and

was not severely reckless in not knowing. Def. Mem. at 7. K. Jablon’s first argument2

misapprehends the nature of the claims against him and the law relating to those claims and

his second claim is contrary to overwhelming weight of the evidence introduced at trial.


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1. K. Jablon May Be Held Liable For His Role In The FraudulentScheme Initiated by Plant

As the Commission argued at trial, the fraudulent scheme in this case involved three

interrelated actions: (1) the publicizing of the fictitious DHS purchase order to the public in

general; (2) the promotion of CyberKey stock to registered broker/dealers based upon the

press releases touting the fictitious DHS purchase orders; and (3) the use of MJMM and Big

Apple as a conduit through which CyberKey could sell its stock into the market. In order to

prove that K. Jablon was involved in a fraudulent scheme under Section 17(a)(1), it is

sufficient to prove that he participated in the scheme or fraudulent conduct that involved the

purchase or sale of a security. United States v. Gruenberg, 989 F.2d 971, 976 (8th Cir. 1993);

United States v. Persky, 520 F.2d 283, 288 (2d Cir. 1975). Further, it is no defense to an

overall scheme to defraud that K. Jablon was not involved in the scheme from its inception or

played only a minor role. See SEC v. U.S. Envtl., 155 F.3d 107, 110 (2d. Cir. 1988) (trader

who executes buy and sell orders that played role in manipulative scheme could be found to

be a primary violator under Rule 10b-5(a)).

In order to establish that K. Jablon aided and abetted CyberKey and Plant, it is

sufficient to show that he provided substantial assistance to their violation of Section 10(b) of

the Exchange Act and Rule 10b-5. Woodward v. Metro Bank of Dallas, 522 F.2d 84, 94-95

(5 Cir. 1975); SEC v. Monterosso, 678 F. Supp.2d 1244, 1269 (S.D. Fla. 2011). In thisth

case, there was ample evidence introduced from which the jury could conclude that K. Jablon

played an essential role in the fraudulent scheme to induce unsuspecting investors to purchase


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CyberKey stock.

K. Jablon’s liability for violating Section 17(a) of the Securities Act and Section 20(e)

of the Exchange Act does not depend on whether Plant was ultimately responsible for the

content of CyberKey’s press releases. The issue is not Plant’s liability for his role in the

fraudulent scheme, but rather, whether K. Jablon is liable because of the actions he took in

furtherance of that scheme.

The undisputed evidence presented to the jury established that K. Jablon played a

significant role in the fraudulent scheme. He was the vice president of Management

Solutions International (“MSI”), a wholly owned subsidiary of Big Apple, Exh. C at 2, that

drafted press releases for clients and operated an investor relations department that answered

investors’ questions. Exh. D. at 13:25-14:4. The evidence established that MSI drafted

virtually all the press releases issued by CyberKey, including those touting the fictitious

purchase order from DHS. In fact, K. Jablon admitted that MSI prepared press releases for

CyberKey on a weekly basis. Id. at 141:13-21. Moreover, all the press releases issued by

CyberKey directed anyone with questions to contact the investor relations department at Big

Apple. Exh. E.

The evidence also demonstrated that K. Jablon was directly responsible for drafting

the press releases concerning the alleged purchase order from the Military Post Exchange

that transformed into the fictitious purchase order from DHS. Exhs. F-M. In addition, K.

Jablon provided specific guidance to Plant on when to issue CyberKey’s press releases.

Exhs. G, I. K. Jablon directed Plant to put out CyberKey’s press release at 8:31 a.m. because


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it permitted the press release to be disseminated to the employees in Big Apple’s call room so

they could use it that same day to market CyberKey stock to broker/dealers. Exh. D at 44:23-

46:1.

Further, K. Jablon provided Plant specific guidance on what to include in the press

releases concerning the DHS purchase. For example, on March 28, 2006, Plant told K.

Jablon that he had received a payment from $4.1 million. Exh. N. The next day K. Jablon

told Plant to change the press release concerning the first payment to indicate it was for $4.2

million, so it was consistent with a previous press release CyberKey issued that stated the

value of the shipment was $4.2 million. Exh. O; see Exh. E at 01392. Further, the

undisputed evidence is that on at least one occasion K. Jablon directed individuals who

worked in the investor relations department on how to respond to inquiries from investors

claiming that DHS said it had no record of a purchase order issued to CyberKey. Exh. P at

16:3-13; 17:4-18:6; 36:12-38:6.

Based on the undisputed evidence presented at trial, a reasonable juror could conclude

that although Plant ostensibly was ultimately responsible for the contents of CyberKey’s

press releases concerning the fictitious DHS purchase order, K. Jablon played a substantial

role in the drafting of those press releases and provided Plant guidance on what those press

releases should contain and how they could be best utilized to market CyberKey stock. A

reasonable juror could also conclude that these actions, along with K. Jablon’s direction on

how to deflect investor inquiries about the DHS purchase order provided substantial

assistance to Plant in conducting his fraudulent scheme.


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2. The Evidence Presented Provided A Legally Sufficient Basis ForThe Jury To Conclude That K. Jablon Acted With Scienter

Contrary to K. Jablon’s argument, there was overwhelming evidence presented to the

jury that K. Jablon actually knew or was severely reckless in not knowing the press releases

that were being prepared by MSI by him or at his direction, concerning the DHS purchase

order were false. First, the undisputed evidence is that in October of 2005, Plant told K.

Jablon that CyberKey had received a purchase order from the Military Post Exchange. Exh.

I. Based on that information, between October 18, 2005 and November 11, 2005, K. Jablon

prepared and forwarded to Plant three different drafts of a press release announcing that

CyberKey had received a multi-million purchase order from the Military Post Exchange.

Exhs. G, H, L. Then on November 11, 2005, only four hours after K. Jablon provided Plant a

draft of a press release announcing that CyberKey had received a $23.9 million purchase

order from the Military Post Exchange, Exh. L, K. Jablon forwarded another draft press

release announcing that CyberKey had received a $24.49 million purchase order from DHS.

Exh. M. There was no evidence that CyberKey ever issued a press release concerning a

purchase order from the Military Post Exchange and no evidence of any further discussion

between K. Jablon about such a purchase order.

A reasonable juror would conclude that the incredible transformation of a multi-

million purchase order from the Military Post Exchange to a multi-million purchase order

from DHS in about four hours would have put K. Jablon on notice that the legitimacy of the

DHS purchase order was suspect. However, there was no evidence presented that


14

notwithstanding the sudden and unexplained transformation of the purchase order, K. Jablon

did anything to attempt to verify its validity. Further, K. Jablon testified that by the Spring of

2006, he actually had doubts about the validity of Plant’s claims of contracts with various

companies including the Military Post Exchange. Exh. D at 87:20-89:3. He also admitted

that when he drafted the “Broken Promises” memo on July 13, 2006, Exh. Q, he had

questions about Plant’s reliability. Exh. D at 147:24-148:20.

It is against the backdrop of K. Jablon’s suspicions about Plant’s reliability that the

jury considered the evidence of inquiry from Mr. Masciocchi at DHS to Big Apple on August

8, 2006. Exh. R. K. Jablon admitted he was aware of the DHS inquiry on the same day it

was received by Kelson Monks. Exh. D at 149:15-150:14. K. Jablon also admitted that

although Plant said he had taken care of the issue with DHS, K. Jablon had questions about

whether Plant had really done as he said. Id. at 156:6-15. Nevertheless, K. Jablon admitted

that he never followed up with Mr. Masciocchi to determine if his questions had been

answered. Id. at 154:9-11. Neither did K. Jablon send a copy of the DHS purchase order he

claimed to have received from Plant to Mr. Masciocchi. Id. at 166:20-167:8. K. Jablon

admitted that if he had sent a copy of the purported DHS purchase order to Mr. Masciocchi,

he would have found out in a few days that it was fraudulent rather than in January or

February of 2007 when trading of CyberKey stock was suspended by the Commission. Id. at

167:9-168:2.

There also was uncontroverted evidence introduced that even after the August 8, 2006

inquiry from DHS, K. Jablon received additional information that would lead a reasonable


15

juror to conclude that K. Jablon actually knew or was severely reckless in not knowing that

the DHS purchase order was fictitious. K. Jablon admitted that by fall of 2006, he became

“inquisitive” about the validity of the DHS purchase order. Id. at 60:1-14. He testified that

after Plant told him CyberKey had received a second payment from DHS but did not issue a

press release concerning that payment, K. Jablon contacted Thomas Heaton (“Heaton”),

CyberKey’s Chief Operating Officer, and asked him when CyberKey was going to issue a

press release about the DHS payment. K. Jablon admitted that Heaton’s response was:

“What payment? Because I have no idea what you’re talking about.” Id. at 61:23-62:16.

Despite all the information Jablon had that the DHS purchase order did not exist and

despite his admitted misgivings about the validity of that purchase order and Plant’s

reliability, the uncontroverted evidence was that K. Jablon did not make any attempt to verify

the existence of the DHS purchase order from sources that were readily available to him. He

did not attempt to contact Mr. Masciocchi at DHS even though he knew who he was and did

not send a copy of the DHS purchase order to him. In addition, although K. Jablon claimed

Plant told him that Kevin Sullivan assisted in obtaining the DHS purchase order, Exh. D at

163:8-17, he never contacted Mr. Sullivan to attempt to verify the existence of that purchase

order. Id. at 163:18-21; Exh. S at 15:2-8; 18:1-6; 19:3-5; 19:25-20:5; 20:10-22:5. A

reasonable juror could conclude from this evidence that if K. Jablon did not actually know

the DHS purchase order was fictitious, he contrived to intentionally avoid knowledge of that

fact by not making inquiries that would have disclosed its nonexistence. K. Jablon’s

deliberate ignorance of the obvious is a legally sufficient basis to conclude he acted


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knowingly, or, at a minimum, with severe recklessness. United States v. Hristov, 466 F.3d

949, 952 (11th Cir. 2006); SEC v. Huff, 758 F. Supp.2d 1298, 1350 (S.D. Fla. 2010), aff’d

2012 WL10862 (11 Cir. 2012) (per curiam). Indeed, K. Jablon’s admission that had he sentth

a copy of the DHS purchase order Plant provided him to Mr. Masciocchi, he would have

found out in a few days that it was fraudulent is an admission of his deliberate ignorance.

See United States v. Honea, 660 F.3d 318, 329 (8th Cir. 2011) (defendant’s admission that if

he had asked questions he would have found out about criminal conduct is an admission of

deliberate ignorance).

Finally, there also was evidence introduced that established unequivocally that K.

Jablon was aware that the press releases that MSI was drafting for Plant contained

misrepresentations about the DHS purchase order. K. Jablon claimed to have received a copy

of the DHS purchase order from Plant in spring 2006. Exh. D at 163:24-164:5. He testified

that he reviewed that purchase order and saw that it was from DHS. K. Jablon test: 164:20-

165:3. Further, Plant told K. Jablon that the first and second payment he received were from

DHS. Exhs. N, T. According to K. Jablon, after the August 8, 2006 inquiry from DHS, Plant

told him that DHS wanted him to delete any reference to DHS from the press releases and say

only that the purchase order was from a “large government entity.” Exh. D at 158:7-23.

However, the October 25, 2006 press release stated that CyberKey had received a $4.2

million payment from “various government agencies.” Exh. E at 01444. In fact, every press

release issued by CyberKey after August 25, 2006, claimed that the company had received a

multi-million purchase order from “various” segments of the U.S. Government or “various


17

government agencies. See Exh. E, at 01429 through 01478. Thus, even if the jury were to

assume that K. Jablon believed Plant’s incredible story and set aside all his misgivings about

the validity of the DHS contract, the jury could conclude that he knowing assisted Plant in

drafting press releases that were fictitious because they claimed CyberKey had received a

purchase order and payment from several government agencies when he knew that Plant

claimed the purchase order and the payments were from only one agency – DHS.

K. Jablon’s attempt to argue that the jury could not reasonably have found he acted

knowing or with severe recklessness because the evidence established he exercised due

diligence in attempting to determine the validity of the DHS purchase order is dependent on

disputed evidence and a disregard of evidence to the contrary.

K. Jablon argues that his due diligence is proven by his call to Heaton to verify that

CyberKey was receiving payment and shipping its products to DHS. Def. Mem. at 7. He

claims that as a result of this call, Heaton called him back and verified that CyberKey had

shipped product to DHS and had received payment. Id. There are two reasons that this

evidence does not provide a sufficient basis to grant K. Jablon judgment as a matter of law.

First, K. Jablon admitted the reason he called Heaton was to find out when CyberKey was

going to issue a press release announcing the second payment from DHS–not to verify

whether that payment had been received. Exh. D at 61:21-62:16. Second, K. Jablon testified

that when he contacted Heaton about the second payment, Heaton said: “What payment?

Because I have no idea what you’re talking about.” Id. at 61:23-62:16. Marc Jablon testified

that when his brother told him what Heaton had said he called Plant who confirmed


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CyberKey had received a second payment from DHS and he never heard anything else from

Heaton. Exh. U at 182:14-25; 190:19-191:4. While Heaton testified he told Keith Jablon

that CyberKey had received a second payment, the jury was free to reject Heaton’s self-

serving testimony and believe the testimony of K. Jablon and Marc Jablon. Therefore,

Heaton’s disputed testimony is not a sufficient basis to grant K. Jablon’s judgment as a

matter of law. See Reeves, 530 U.S. at 151 (in ruling on a Rule 50 motion, a court should

“disregard all evidence favorable to the moving party that the jury is not required to

believe”).

The jury’s verdict against K. Jablon is not based merely on legally sufficient

evidence–it is consistent with the overwhelming weight of the evidence showing that his

actions in furtherance of the fraudulent scheme to sell CyberKey stock based on a fictitious

DHS purchase order were knowing or done with severe recklessness. Therefore, K. Jablon’s

motion for judgment, as a matter of law, and for a new trial should be denied.

C. The Evidence Presented Warranted Instructing The Jury OnDeliberate Ignorance

Although K. Jablon argues the Court erred when it instructed the jury on “deliberate

ignorance,” he has provided no explanation of why he believes this instruction was not

warranted or any legal precedent supporting his assertion. K. Jablon’s failure to fully develop

his argument should preclude its consideration by the Court. See Mahaffey v. Ramos, 588

F.3d 1142, 1146 (7th Cir. 2009) (undeveloped and unsupported arguments need not be

considered); United States v. Amerson, 185 F.3d 676, 689 (7th Cir. 1999) (“not the role of


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this Court to research and construct legal arguments open to the parties”); Swanigan v.

Trotter, 645 F. Supp.2d 656, 681(N.D. Ill. 2009); Garcia v. Reed, 227 F. Supp.2d 1183, 1190

(D.N.M. 2002). To the extent the Court does consider the legal memorandum filed by

Defendants Big Apple, MJMM, and Marc Jablon in resolving K. Jablon’s claim, the

Commission relies upon the law and argument contained in its Memorandum in Opposition

to Defendants Big Apple Consulting USA, Inc., MJMM Investments LLC, and Marc Jablon’s

Motion for Judgment as a Matter of Law Pursuant to Fed. R. Civ. P. 50(a).

CONCLUSION

For the reasons set forth above, the Court should deny Defendant K. Jablon’s Pro Se

Motion for Directed Verdict and Judgment as a Matter of Law and also should deny His

Motion for a New Trial.


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February 21, 2012 Respectfully submitted,

Of Counsel: s/Jeffery T. Infelise Thomas A. Sporkin Jeffrey T. Infelise David R. Herman Assistant Chief Litigation Counsel

D.C. Bar No. 456998Lead and Trial Counsel

Duane K. ThompsonAssistant Chief Litigation Counsel100 F Street, N.E. Washington, DC 20549-4010Tel: (202) 551-4904Fax: (202)772-9362E-mail: [email protected]

Attorneys for PlaintiffU.S. Securities and Exchange Commission

CERTIFICATE OF SERVICE

I hereby certify that on February 21, 2012, I electronically filed the foregoing with theClerk of the Court by using the CM/ECF system. I also certify that the foregoing document isbeing served this day on counsel of record or pro se parties identified on the attached ServiceList in the manner specified, either via transmission of Notices of electronic filing generatedby CM/ECF or in some other authorized manner for those counsel or parties who are notauthorized to receive electronically Notices of Electronic filing.

s/Jeffery T. Infelise Jeffery T. Infelise


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SERVICE LIST

VIA CM/ECF

Carl F. SchoepplFlorida Bar No. 818518Schoeppl & Burke, P.A. 4651 North Federal HighwayBoca Raton, FL 33431-5133Tel: (561) 394-8301Fax: (561) 394-3121E-mail: [email protected]

Attorney for Defendants Big AppleConsulting USA, Inc.; MJMM Investments, LLC, and Marc Jablon

VIA FIRST CLASS MAIL

Matthew Maguire Keith Jablon 8645 Spikerush Court 329 Blue Stone CircleSanford, FL. 32771 Winter Garden, FL 34787Defendant pro se Defendant pro se

Mark C. Kaley14924 Gaulberry RunWinter Garden, FL 34787Defendant pro se


SEC v Big Apple Et Al Doc 169 Filed 21 Feb 12

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Transcript of SEC v Big Apple Et Al Doc 169 Filed 21 Feb 12