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UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff, No. 2:16 Civ. 01619 (BRM)(JAD)

v.

GUY GENTILE,

Defendant.

DEFENDANT GUY GENTILE’S MEMORANDUM OF LAW IN SUPPORT OF HIS

MOTION FOR CONTEMPT
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TABLE OF CONTENTS

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

PRELIMINARY STATEMENT AND RELEVANT FACTS ........................................................1

ARGUMENT ...................................................................................................................................5

I. Introduction ..........................................................................................................................5

II. Legal Standard .....................................................................................................................9

III. The SEC Violated This Court’s Order Directing The SEC To File Its Allegations Against
Gentile Regarding The Bahamian Broker-Dealer In A Second Amended Complaint If It
Wanted To Seek Relief Based On Those Allegations .......................................................10

CONCLUSION ..............................................................................................................................11

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TABLE OF AUTHORITIES

Harris v. City of Philadelphia,

47 F.3d 1311 (3d Cir 1995)..........................................................................................................9

Henderson v. Orr,
1987 WL 19715 (S.D. Ohio May 5, 1987) ................................................................................10

Hinton v. Sullivan,
737 F. Supp. 232 (S.D.N.Y. 1990) ............................................................................................10

Marbury v. Madison,
5 U.S. 137 (1803) .......................................................................................................................10

McComb v. Jacksonville Paper Co.,

336 U.S. 187 (1949) .....................................................................................................................9

Robin Woods Inc. v. Woods,

28 F.3d 396 (3d Cir. 1994)...........................................................................................................9

Statutes and Rules:

15 U.S.C. § 78u(d) ...........................................................................................................................7

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Defendant Guy Gentile (“Gentile”) respectfully submits the following memorandum of

law in support of his motion for an order to show cause why the U.S. Securities and Exchange

Commission (“SEC”) should not be held in contempt for disobeying the Court’s September 29,

2020 Order (the “Order”) dismissing this action without prejudice.

PRELIMINARY STATEMENT AND RELEVANT FACTS1

This motion raises a novel, singular issue: what is the appropriate response by a court

where a governmental agency allows a deadline to lapse set forth in an Order dismissing its

action without prejudice with leave to replead specific allegations within twenty days, and then

files an action containing those same specific allegations in another federal court five months

later? To be more precise, this Court stated unequivocally in its September 29, 2020 Order

granting Gentile’s motion to dismiss without prejudice that if the SEC wished to bring

allegations against Gentile related to his Bahamian broker-dealer, “they must be included in a

further amended complaint.” (Ex. A, Order, Sept. 29, 2020, pg. 25 (emphasis added)). The SEC

failed to do so within the twenty days provided by the Court; instead, it brought these allegations

in a new complaint filed in the Southern District of Florida (the “Florida Complaint”) five

months later. Given the factual and procedural history of this matter, as set forth below, the

Court should order the SEC to show cause why it should not be held in contempt of the

September 29 Order, and issue a further directive ordering the SEC to withdraw the Florida

Complaint and imposing a $175 per day fine on the SEC for each day it continues to disregard

the September 29 Order.

To provide some additional context for this novel issue, on September 29, 2020, the

Court dismissed the SEC’s Amended Complaint against Gentile in its entirety—the third time

1
For the sake of brevity, this brief omits a statement of facts and assumes familiarity with the detailed and
lengthy factual and procedural history of this case which dates back to 2012.

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this Court had dismissed the complaint against Gentile. The Court, however, dismissed the

Amended Complaint without prejudice, granting “the SEC one final opportunity to amend their

complaint.” (Ex. A, Order, Sept. 29, 2020, pg. 31). Specifically, in dismissing the action, the

Court highlighted that “the SEC might be well-served by including [allegations relating to

[Gentile’s] presence in the securities industry in the Bahamas] in a further amended complaint.”

(Id. pg. 29).

At the time of this statement, the Court had already been informed by the SEC that the

SEC believed the allegations and relief sought in the Amended Complaint encompassed

Gentile’s alleged conduct related to his Bahamian broker-dealer, including by way of a letter sent

to the Court as early as April 26, 2017. By that letter, the SEC sought to lift a stay of the matter

based on “a pending, non-public investigation into possible securities laws violations arising out

of Gentile’s operation of his Bahamian broker-dealer,” which it intended to use in this action “if

the staff determines that documents obtained in that investigation are relevant to the allegations

in the instant complaint.” (Ex. B, SEC Ltr., April 26, 2017, pg. 6 n.8). As the SEC was careful

to delineate in a subsequent letter to this Court on May 9, 2017, urging a lift of the stay, “the

investigation into his operation of his Bahamian broker-deal has been ongoing since before [the

dismissed 2016] indictment was filed,” specifically since 2014. (Ex. C, SEC Ltr., May 9, 2017

pg. 1).

Ultimately, the SEC determined not only that the allegations related to Gentile’s

Bahamian broker-dealer were “relevant” and “related” to the allegations made in the Amended

Complaint, but the SEC made these allegations a centerpiece of this action, including its

discovery requests as well as its opposition to his motions to dismiss.2 On March 2, 2020, the

2
For example, after the Court ordered the SEC to file an Amended Complaint due to inadequacies in the
initial complaint and Gentile moved to dismiss the complaint the second time, the SEC filed an opposition

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SEC served document requests on Gentile with more than a half-dozen requests specifically

related to his Bahamian broker-dealer and related entities, including requests for documents

related to Gentile’s “beneficial ownership” of these entities as well as documents from the

Securities Commission of the Bahamas. (Ex. D, SEC FRD ¶¶ 21–28). The SEC served

interrogatories seeking similar information related to the Bahamian broker-dealer and related

entities. (Ex. E, SEC Inter. ¶¶ 13–14).

When Gentile opposed these requests as outside the scope of the Amended Complaint,

the SEC vigorously argued that it should be permitted to seek information related to Gentile’s

Bahamian broker-dealer because it related to and supported the allegations and relief sought in

the Amended Complaint. The SEC insisted on its relevance, even issuing third-party subpoenas

to these entities. (Ex. F, SEC Subpoena, Mint Global Markets pg. 4, Reqs. 1, 3–4; see also Ex.

G, SEC Ltr., Aug 24, 2020 pg. 2 seeking documents “evidencing [] transfers” by “Gentile-owned

Bahamian entity [Swiss America Securities Ltd.]” and documents “evidencing Mr. Gentile’s

relationship to the entities Stock USA Trust and [the Bahamian broker-dealer]).” More

critically, the SEC made allegations related to the Bahamian entity a cornerstone of its

opposition to Gentile’s subsequent motion to dismiss the Amended Complaint, arguing that

“more recent judicially-noticeable facts” related to the Bahamian entity, including the fact that

brief on July 21, 2017, arguing that Gentile’s conduct in the Bahamas supported denial of the motion to
dismiss. (Ex. S, SEC MTD Opp. Br., July 21, 2017 pgs. 2, 21). In support of its opposition, the SEC
attached a lead counsel’s affidavit and several exhibits related to Gentile’s alleged conduct in the
Bahamas. (Ex. T, Brown Decl. dated July 21, 2017 ¶ 19(f); Ex. S, SEC MTD Opp. Br., July 21, 2017).
Of course, the Amended Complaint itself alleges that Gentile’s conduct in the Bahamas supports its
prayer for injunctive relief. (Ex. N, Am. Cmplt. ¶¶ 14, 82). In fact, SEC Senior Litigation Counsel
Daniel Staroselsky has publicly acknowledged that the SEC filed this action in response to Gentile’s
alleged conduct related to the Bahamian broker-dealer. As Staroselsky admitted during an October 9,
2020 Practicing Law Institute program, “After the criminal action was dismissed, Gentile publicly
announced that Gentile wanted to publicly expand the brokerage firm that he owned in the Bahamas, and
at that point the SEC filed its case.” PLI, The SEC Speaks, available at
https://www.pli.edu/faculty/daniel-staroselsky-26947 (last visited November 1, 2021).

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Gentile was currently being investigated by the SEC for conduct related to the Bahamian broker-

dealer, supported denial of the motion. (Ex. H, SEC MTD Opp., April 3, 2020 pg. 21).

The Court declined to take “judicial notice of [these purported] facts,” including

allegations concerning purported “representations made by [Gentile] regarding his participation

in the securities industry in the Bahamas….” (Ex. A, Order, Sept. 29, 2020 pg. 23). Having

declined to take judicial notice of allegations of potential violations of the securities laws in the

Bahamas, the Court ordered, “If the SEC wishes the Court to consider these allegations, they

must be included in a further amended complaint.” (Id.) (emphasis added). The SEC

submitted a letter to this Court on the deadline for filing a second amended complaint, October

19, 2020, “respectfully inform[ing] the Court that it will not file a further amended complaint in

this matter,” and the Court directed the Clerk “to CLOSE this matter” on October 21, 2020 (Ex.

I, SEC Ltr., Oct. 19, 2020; Ex. J, Order, Oct. 21, 2020).

Five months later, on March 22, 2021, the SEC filed a complaint against Gentile (along

with Bahamian company MintBroker International, Ltd. f/k/a Swiss America Securities Ltd.) in

the Southern District of Florida. (See Ex. K, Florida Cmplt.). The allegations in the Florida

Complaint overlap in time with the allegations in the Amended Complaint. The Florida

Complaint alleges that “Gentile hatched his plan in early 2012,” (ignoring that he was

cooperating with the SEC and DOJ at this time) and that the alleged violations began “no later

than March 2016.” (Id. ¶ 2). Read literally, the Florida Complaint, recently served on Gentile

and MintBroker, sets forth allegations of Gentile allegedly engaging in daily violations of the

securities laws from 2012 to 2019. (Id. ¶¶ 2, 32). These allegations are as startling as they are

revealing since this Court has twice previously instructed the SEC to include in its complaint any

allegations of wrongdoing after June 2008, including allegations of wrongdoing emanating from

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the Bahamas. (Ex. L, Order, Dec. 13, 2017 pg. 2; Ex. M, Order, Sept. 18, 2017 ¶¶ 6–8, 10; Ex.

A, Order, Sept. 29, 2020 pgs. 23–25, 29 n.12).

Even more contemptible, the SEC has known about the alleged conduct purportedly

giving rise to these alleged violations since 2012. As the Court is aware, Gentile began working

as a cooperator in 2012 and the FBI and SEC not only actively monitored the Bahamian broker-

dealer but utilized it pursuant to these cooperation agreements to ensnare securities violators with

Gentile’s assistance. Gentile repeatedly told the FBI and the SEC exactly how his Bahamian

broker-dealer operated and the FBI visited his office on numerous occasions. The FBI 302s

produced in this action by the SEC are replete with notes of Gentile explaining what MintBroker

did and how it operated.

The SEC’s ongoing harassment of Gentile should be thwarted. To this end, he requests

the Court issue an order to show cause why the SEC should not be held in contempt, and

ultimately issue a contempt order mandating the SEC withdraw the Florida Complaint.

ARGUMENT

I. Introduction

After the Court stayed this matter in early 2017 pending the Supreme Court’s decision in

Kokesh, the SEC sought to lift the stay highlighting that “the Commission has a pending, non-

public investigation into possible securities laws violations arising out of Gentile’s operation of

his Bahamian broker-dealer.” (Ex. B, SEC Ltr. April 26, 2017 pg. 6 n.8).

As the Court is aware, Gentile began acting as a cooperator for the FBI, DOJ, and SEC

beginning in 2012, and over the next nearly four years assisted them in prosecuting a number of

high-profile criminal and securities fraud cases, resulting in service of substantial jail time for,

civil monetary fines against, and millions of dollars in disgorgement against securities law

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violators. During this time, the FBI, DOJ, and SEC had complete, unfettered access to the

Bahamian broker-dealer’s and affiliated entities’ financial and transactional records. The

agencies received everything they asked for from Gentile promptly and without question.

Accordingly, any purported securities law violations perpetrated by Gentile would have to had

occurred in plain sight of these agencies. Still, the Florida Complaint alleges that “Gentile

hatched his plan in early 2012.” (Ex. K, Florida Cmplt. ¶ 12).

This, of course, begs the question how it could be that the SEC—an agency tasked with

investor protection—permitted this ongoing securities law violation for nine years? There are

two answers to this question. The first is obvious: no securities law violations occurred during

the time of Gentile’s active cooperation between 2012 and March 2016 (or any time thereafter).

The second answer, more relevant to the instant motion, is that the SEC has been trying since

2016 to get an injunction against Gentile in this case based on his alleged conduct related to the

Bahamian broker-dealer. Indeed, the SEC has always viewed its investigation into the Bahamian

broker-dealer as “related” to the instant matter and as a primary basis on which to seek an

injunction from this Court.3

Just two days after submitting its April 26, 2017 letter seeking to lift the stay and

highlighting alleged “violations” by Gentile’s Bahamian broker-dealer, the SEC filed initial

3
The Amended Complaint itself alleges that:

Gentile maintains an active presence in the securities industry as the

beneficial owner of a Commission-registered broker-dealer and the CEO
of a Bahamas-based online brokerage firm. In recent public statements,
Gentile has committed to expanding his securities industry businesses.
Gentile’s ongoing involvement in the securities industry will present him
with daily opportunities to violate the securities laws again.

(Ex. N, Amend. Cmplt. ¶ 82).

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disclosures in which it described the investigation into the Bahamian broker-dealer as “related”

to the instant case. (Ex. O, SEC Initial Disclosures pg. 6 n.1).

When the Court briefly opened up discovery in this matter in 2020, the SEC served

requests for documents and interrogatories on Gentile, seeking detailed information related to the

Bahamian broker-dealer. The document requests sought information related to the Securities

Commission of the Bahamas, Gentile’s relationship to the Bahamian broker-dealer and related

entities, and his ownership or pecuniary interest in the entities. (Ex. D, SEC FRD ¶¶ 21–28).

Interrogatory requests sought similar information. (Ex. E, SEC Inter. ¶¶ 13–14). When Gentile

objected to these requests as outside the scope of the Amended Complaint, the SEC repeatedly

argued––during meet and confers, in email correspondence, in letters to the Court, and before the

Court––that requests related to alleged violations of the securities laws at the Bahamian broker-

dealer were proper because they supported the SEC’s request for injunctive relief against

Gentile. (Ex. P, SEC Ltr., Sept. 15, 2020; Ex. Q, Email chain, dated Aug. 20, 2020).

On vacatur by the Third Circuit of the Court’s initial Order dismissing this action,

Gentile filed a subsequent motion to dismiss the Amended Complaint, arguing, among other

things, that the SEC only alleged misconduct (from 2007 and 2008), meaning the SEC had no

non-time barred claim on which the Court could properly fashion an injunction pursuant to 15

U.S.C. § 78u(d). The SEC opposed the motion by setting forth purported “more recent

judicially-noticeable facts relevant to injunctive relief,” namely, (false) allegations related to

purported wrongdoing by “Gentile and his Bahamian broker-dealer firm….” (Ex. H, SEC MTD

Opp. Br., April 3, 2020, pg. 7). In support of this argument, the SEC attached a declaration of

SEC staff attorney Nancy Brown attaching three exhibits related to the alleged violations of

securities laws at the Bahamian broker-dealer, specifically alleging it was not registered with the

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SEC.4 (Ex. R, Brown Decl. dated April 3, 2020; Ex. H, SEC MTD Opp. Br., April 3, 2020 Ex.

A–C).

In other words, the SEC sought to litigate the question of Gentile’s alleged violations of

the securities laws in connection with his Bahamian broker-dealer before this Court, but it lost on

that issue as the Court declined to take judicial notice of these facts. Instead, it ordered, “If the

SEC wishes the Court to consider these allegations, they must be included in a further

amended complaint.” (Ex. A, Order, Sept. 29, 2020) (emphasis added). Notwithstanding the

Court’s order to file a second amended complaint containing any allegations related to

misconduct by Gentile involving the Bahamian broker-dealer within twenty days, the SEC

declined to do so. (Ex. I, SEC Ltr., Oct. 19, 2020). Accordingly, the Court ordered the Clerk

close the case on October 21, 2020. (Ex. J, Order, Oct. 21, 2020).

Five months later, on March 22, 2021, the SEC filed a complaint against Gentile and the

now-defunct Bahamian broker-dealer seeking, among other things, injunctive relief for conduct

allegedly beginning in 2012 but “[f]rom no later than March 2016.” (Ex. K, Florida Cmplt. ¶¶

1–2). In other words, the Florida Complaint seeks the same relief, an injunction, based on the

same conduct, alleged misconduct by the Bahamian broker-dealer, for which it sought an

injunction in the Amended Complaint. Moreover, the Florida Complaint makes allegations

related to this case (as well as the parallel dismissed criminal matter) along with allegations

about the Puerto Rico OFCI permit denial, which the SEC raised as a basis for the relief sought

in this case. (Id. ¶¶ 19–20; Ex. H, SEC MTD Opp. Br., April 3, 2020 Ex. D).

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In addition, the SEC made “allegations” in its opposition brief related to the purported denial by Puerto
Rico’s Office of the Commissioner of Financial Institutions (“OFCI”) of an application by Gentile to
organize an “international financial entity.” The Brown Declaration attaches a fourth exhibit related to
these OFCI allegations as well. Despite also being ordered to include them in a second amended
complaint, the SEC failed to do so, but nonetheless included these OFCI “allegations” in the Florida
Complaint five months later. (Ex. K, Florida Cmplt. ¶ 20).

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II. Legal Standard

Pursuant to 18 U.S.C. 401: “A Court of the United States shall have power to punish by

fine or imprisonment, or both, at its discretion, such contempt of its authority, and none other,

as…disobedience or resistance to its lawful writ, process, order, rule, decree, or command.” “To

prove civil contempt the court must find that (1) a valid court order existed, (2) the defendant had

knowledge of the order, and (3) the defendant disobeyed the order.” Harris v. City of

Philadelphia, 47 F.3d 1311, 1326 (3d Cir. 1995). “The validity of the underlying order is not

open to consideration.” Id. at 1326–27 (affirming contempt order against city for “fail[ure] to

comply with [] provisions of the prior orders”). Courts make clear “that because civil contempt

sanctions, or those penalties designed to compel future compliance with a court order, are

considered to be coercive and avoidable through obedience, they may be imposed in an ordinary

civil proceeding upon notice and an opportunity to be heard, and require neither a jury trial nor

proof beyond a reasonable doubt.” Id. at 1328.

“[G]ood faith is not a defense to civil contempt,” and since willfulness is not a necessary

element of civil contempt…evidence regarding good faith does not bar the conclusion that the

defendant acted in contempt.” Robin Woods Inc. v. Woods, 28 F.3d 396, 399 (3d Cir. 1994). As

the Supreme Court has affirmed, “[s]ince the purpose” of “civil contempt” is “remedial,” that is,

“a sanction to enforce compliance with an order of the court or to compensate for losses or

damages sustained by reason of noncompliance,” “it matters not with what intent the defendant

did the prohibited act.” McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949).

The executive branch of the federal government is not above the law, and federal courts

have the power to review its actions. Marbury v. Madison, 5 U.S. 137 (1803). Pursuant to this

power, courts have held federal agencies and their officials in contempt and may require those

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agencies to pay daily fines until they have complied with the violated order. See Hinton v.

Sullivan, 737 F. Supp. 232, 241–42 (S.D.N.Y. 1990) (finding secretary of Department of Health

and Human Services in contempt for violating “remand Order” and ordering agency to pay

$1000 in compensatory damages, including for “mental and emotional stress”); Henderson v.

Orr, 1987 WL 19715, at *2 (S.D. Ohio May 5, 1987) (ordering fine of $500 per day and

“direct[ing] officials from the [General Accounting Office] and the Department of the Treasury

appear…to show cause why they should not be held in contempt for such conduct”).

III. The SEC Violated This Court’s Order Directing The SEC To File Its Allegations
Against Gentile Regarding The Bahamian Broker-Dealer In A Second Amended
Complaint If It Wanted To Seek Relief Based On Those Allegations

This Court made clear pursuant to its Order that the SEC “must” include its allegations

related to Gentile’s (and the Bahamian broker-dealer’s) purported misconduct in a second

amended complaint filed with 20 days of the Order. Rather than abide, the SEC forum shopped,

ultimately filing an untimely, reworked complaint in the Southern District of Florida. In addition

to including allegations related to this action, the Florida Complaint seeks, among other things,

to enjoin Gentile for the same alleged misconduct related to the Bahamian broker-dealer. These

are the same allegations the SEC sought to use to justify issuance of an injunction in this matter,

the SEC sought discovery on, and the Court ordered the SEC to include in a second amended

complaint.

Failure to file a second amended complaint in this action and instead filing a reworked

complaint in a different federal court clearly and directly violated the Court’s Order. This

conduct warrants a finding of contempt, an order directing the SEC to withdraw the Florida

Complaint, and imposition of a corresponding fine of $175 per day for each day it fails to do

so¾with the moneys to be directed to the Court for operational costs. At a minimum, the Court

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should issue an order to show cause why the SEC should not be held in contempt for this

conduct.

CONCLUSION

For the reasons set forth herein, Gentile respectfully requests the Court issue an order to

show cause why the SEC should not be held in contempt for violating the Court’s September 29,

2020 Order dismissing the Amended Complaint. Gentile further requests the Court hold the SEC

in contempt and issue a $175 per day fine for each day it fails to withdrawal the Florida

Complaint along with any other relief the Court deems just and proper.

Dated: November 2, 2021

New York, NY
Respectfully submitted,

FORD O’BRIEN, LLP

________________________
Adam C. Ford, Esq.
Matthew A. Ford, Esq.
575 Fifth Ave, Floor 17
New York, NY 10017
Tel: (212) 858-0040
aford@fordobrien.com
mford@fordobrien.com

Counsel for Defendant Guy Gentile

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CERTIFICATE OF SERVICE

I hereby certify that I caused the foregoing Defendant’s Memorandum of Law in Support

of His Motion for Contempt, dated November 2, 2021, to be served on Defendant by filing via

PACER, with notice to Plaintiff’s counsel, at brownn@sec.gov this 2nd day of November 2021.

________________
Adam C. Ford, Esq.

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