Regulatory leviathan incompetency may lead to preclusion sanctions. But this doesn’t matter if the sanctions preclude two directors of alleged foreign shell entities from “offering testimony, affidavits or declarations in connection with a dispositive motion or trial,” and the sanctions are partially based on the very same two directors’ refusals to offer such testimony, affidavits or declarations in connection with depositions. In other words, the defendants have no interest in testifying, are being reprimanded for not testifying, and their punishment is to preclude them from testifying. (“Continue Reading…”)

Here, the SEC froze the assets of more than a half-dozen entities which conduct business from Hong Kong based on pyramid scheme allegations. Prior to the freeze, at least a few of the defendant entities used third-party vendors to control their IT departments and these defendants were no longer capable of paying the outside vendors, post-freeze. During the course of discovery, the defendants, now without an IT department, provided the SEC with a “complete image of all information maintained on the corporate server”. Next, the defendants, fearful of adverse action by authorities in their own nation, refused to attend depositions and instead offered to attend remote videoconference depositions. Soon thereafter, the leviathan sought sanctions for spoliation, which were later recommended. Months later, the incompetent SEC figured out how to read the original hard drive provided during discovery, which had been in the SEC’s possession the entire time. The preclusion sanction still stands because the defendants did not comply with the court order to attend the depositions.

In the future, if you’re a foreign businessman who finds yourself under the SEC’s radar, remember to formally request depositions to be electronically conducted, formally request asset freezes to be lifted so your third party vendor can assist the incompetent SEC to understand the information you provided in discovery, or ignore the laws of your home state, put your entire family in jeopardy, and attend the deposition.

Law Suit Exposer, a Seton Hall University School of Law student (Class of 2016), focuses his studies in the area of NJ foreclosure defense.

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