Utah Court Adopts SEC Calculations, Orders Disgorgement and Penalties Totaling Over $15M in Crypto Fraud Case
On Tuesday, September 10, 2024, the US District Court for the District of Utah issued a memorandum decision and order regarding the Securities and Exchange Commission’s (SEC) request for monetary relief against several defendants involved in a fraudulent crypto investment scheme. The court ruled in favor of the SEC, ordering disgorgement, prejudgment interest, and civil penalties against defendants Daniel F. Putnam, Jean Paul Ramirez Rico, MMT Distribution, LLC, and R&D Global, LLC.
The case stems from allegations that Putnam operated multiple multilevel marketing (MLM) businesses from 2017 to 2019, which solicited investments in cryptocurrency mining and trading. According to the SEC, Putnam raised approximately $12 million from investors, promising them profits from cryptocurrency operations. However, the SEC asserted that these promises were unfulfilled, and investors lost significant amounts of money.
The court’s decision followed a hearing held on July 27, 2024, where both parties presented their arguments. The SEC’s motion for monetary relief was based on previously established consent decrees, which stipulated that the court would determine the appropriateness of disgorgement and civil penalties. The court noted that the defendants had agreed to accept the allegations in the SEC’s complaint as true for the purposes of this motion.
The SEC’s evidence included an expert report from Dr. John M. Griffin, who analyzed financial transactions linked to the defendants’ activities. Griffin identified a total of $23,592,986 collected at various accounts used to gather investor funds, which he termed “Collection Points.” After accounting for recycled funds and other legitimate sources, he determined that approximately $7,970,859 constituted the defendants’ ill-gotten gains. This amount was attributed to individual defendants based on their control over the Collection Points.
In contrast, the defendants presented their own expert reports and argued that the SEC’s calculations were flawed. They contended that the SEC had failed to demonstrate a clear connection between the funds raised and the alleged wrongdoing. Specifically, they claimed that the SEC’s methodology lacked a reasonable approximation of true losses to investors.
The court addressed the issue of joint and several liability, indicating that it was appropriate for the defendants to engage in concerted wrongdoing. The court found that the evidence supported the SEC’s claims of joint wrongdoing among the defendants, warranting joint and several liability.
In reviewing the SEC’s request, the court underscored the principle that disgorgement serves as an equitable remedy designed to deprive wrongdoers of ill-gotten gains. The ruling emphasized that the burden of proof shifted to the defendants to demonstrate that the SEC’s approximation was unreasonable.
The court ultimately concluded that the SEC had provided a sufficient basis for its disgorgement calculations, which included funds that could not be conclusively traced to investors due to the defendants’ concealment of their activities.
The court order includes the following amounts:
a. Mr. Putnam, MMT, and R&D must jointly disgorge $1,963,432 plus prejudgment interest of $336,593, totaling $2,300,025.
b. Mr. Ramirez Rico must disgorge $4,622,011 plus prejudgment interest of $792,357, totaling $5,414,368.
c. Mr. Putnam and Mr. Ramirez Rico must jointly disgorge $1,248,258 plus $213,990, totaling $1,462,248.
d. Mr. Putnam must pay a civil penalty of $1,960,000.
e. Mr. Ramirez Rico must pay a civil penalty of $4,620,000.
f. MMT must pay a civil penalty of $288,078.
g. R&D must pay a civil penalty of $288,078.
Please contact BlockTribune for access to a copy of this filing.
