Securities and Exchange Commission v. Daryl M. Davis

Summary

This Report and Recommendation addresses the Securities and Exchange Commission’s motion for default judgment against Daryl M. Davis in an action to enforce a 2019 SEC administrative order. The court recommends granting the motion in part and denying it in part, including assessment of a third-tier civil money penalty of $184,767. It recommends denying prejudgment interest and treating post-judgment interest as available by operation of law, while addressing requested injunctive relief.

Holdings

1. Default judgment was appropriate because Davis failed to plead or otherwise defend, did not successfully challenge service, and did not respond to the motion for default judgment or its supplement.
2. The well-pleaded allegations established a plausible violation of Sections 206(1) and 206(2) of the Advisers Act because Davis was an investment adviser who engaged in fraudulent activities through material misrepresentations and negligently breached fiduciary duties.
3. A third-tier civil money penalty of $184,767 was warranted based on Davis's fraudulent and recurrent conduct, high scienter, and the significant risk of substantial losses to others.
4. Prejudgment interest should be denied because the Commission failed to provide a factual and evidentiary basis for calculating the amount or identifying when interest began to accrue.
5. The request for a separate award of post-judgment interest should be denied because such interest applies by operation of law to a money judgment.
6. The Commission did not establish a reasonable and substantial likelihood that Davis would violate securities laws in the future, so injunctive relief should be denied.

Questions Presented

1. Whether default judgment was appropriate under Federal Rule of Civil Procedure 55.
2. Whether the well-pleaded allegations established violations of Sections 206(1) and 206(2) of the Investment Advisers Act.
3. Whether the court could assess a third-tier civil money penalty of $184,767.
4. Whether the Commission established an entitlement to prejudgment interest and post-judgment interest.
5. Whether the Commission established a reasonable and substantial likelihood of future securities-law violations sufficient to warrant injunctive relief.

Disposition

other