GlobeTel described itself as being in the wholesale telecom business. In two separate actions, the SEC alleged that GlobeTel’s executives created a series of false invoices so that GlobeTel could record revenue for telecom services that actually were provided by other firms.
GlobeTel’s Chief Financial Officer, Lawrence Lynch, settled with the SEC on liability but contested the damage amounts. Two other individuals, Chief Operating Officer Joseph Monterosso and his business partner, Luis Vargas, contested both liability and damages.
The US District Court for the Southern District of Florida granted summary judgment in favor of the SEC as against Monterosso and Vargas, finding them jointly and severally liable for $675,000 in disgorgement, while imposing civil penalties of $300,000 and $150,000. With respect to Lynch, the District Court ordered payment of a civil penalty of $780,000.
On appeal, the Eleventh Circuit found that there was ample evidence in the record to support the summary judgment finding and, in particular, rejected the argument that Monterosso and Vargas lacked scienter because the scheme had been approved by senior management. The court affirmed the joint and several disgorgement award because (a) the SEC had produced a “reasonable approximation” of the defendants’ ill-gotten assets, and (b) there was evidence in the record showing that Monterosso and Vargas had “acted in concert.” With respect to the civil penalties, the Eleventh Circuit affirmed because the record showed misconduct involving fraud and deceit, and because the District Court took into account the defendants’ ability to pay.
SEC v. Monterosso., et al., No. 0:07-cv-61693-JAL (S.D. Fl. March 3, 2014).