Case 2:08-cv-00437-LRH-RJJ Document 171 Filed 01/18/11 Page 1 of 11

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1 SERGEY RUM YAN TSEV,pro se , zs q:;):

1951N Jones//G202 L)11 -l)s
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2 Las V egas N V 89108 xf
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3 E-mail:qhg-plllkt
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Telephone:(702)647-7925 ., y'
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U N ITE D ST A T ES D ISTR IC T C O U R T
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D ISTR IC T O F N EV A D A
7

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SECU RIT IES Ar EX CH A N G E C ase N o.2-08CV 00437-LRH -ltJJ
9 CO M M ISSION
10 ,Plaintiff, D
REtJFEN
M V ADA N T SE,sR G EY
N TSEV
11 vs. SU PPL EM EN T A L
M EM O R AN D U M IN
12 CM K M D IA M O N D S,IN C .,etaI., O PPO SITIO N T O PLA IN T IFF
13 D efendants. SEC U R IT IE S A N D EX C H A N G E
CO M M ISSION 'S M OTION FOR
14 . - =
SU M M A R Y JU D G M E N T
15
1.IN TRO D UC TIO N
16
17 On or aboutJanuary 11,20l1,Plaintifffiled a Reply in Further Supportof
18 M otion for Sum m ary Judgm entA gainstD efendantSergey Rum yantsev
19 (tçplaintiff'sReply,''(DocketNo.1641).lnview oftheissuesraised inPlaintiff's
20 Reply and pursuantto Rule 56 ofthe FederalR ules ofCivilProcedure,D efendant
21 Sergey R um yantsev,appearingrrtpse,respectfully subm itsthis Supplem ental
22 M em orandum in O pposition to the pending Plaintifps M otion for Slzm m ary
23 Judgm ent,on file herein,to clarify his argum entand supplem entpoints and
24 authorities contained in D efbndant's M em orandum in O pposition to Plaintiff's
25 M otion for Sum m ary Judgrnentfiled on or aboutD ecem ber28,2010
26 Cr efendant'sM emorandumn).

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 Case 2:08-cv-00437-LRH-RJJ Document 171 Filed 01/18/11 Page 2 of 11

l First,in itsreply,Plaintiffdownplaysthe materiality ofundisputed facts

2 included in D efendant'sM em orandum and em ploys its ow n interpretation of
3 applicable law to challenge Defendant'sassertion thathe wasnei'
therattnecessary
4 participant''nora Eisubstantialfactor''in the unregistered distribution ofC
5 stock.Plaintiffargues(a)thatDefendanthascitedççno authority which requires
6 thatthe Com m ission prove a particularsetoffactsto establish thathe w as a
7 Enecessaryparticipant'orçstlbstantialfactor''''and(b)thatthenonexistenceof
8 certain facts is im m aterialto D efendant's status asa tûnecessary participant''and
9 ççsubstantialfactor''(SeePlaintiff'sReply,1:12-1:14 and 4:10-4.
.'
.
t1).
10 Plaintiff's interpretation ofthe applicable 1aw seem sto suggestthat
11 D efendant's failure to actafter learning ofcertain facts is equivalentto indirect
12 participation in a sale ofsecurities w ithin the m eaning ofSection 5 ofthe
13 Securities A ctof 1933. T hatinterpretation is too broad. The pointsand
14 authoritiescited in the A rgum entcontained herein m ake itclearthatone has to act
15 in orderto m eetthe Rnecessltry participant''and Rsubstantialfactor''standard.
16 Thus,w hile Plaintiffm ay nothave to ççprove a particular setof factsy''ithas to
17 prove facts evidencing actions in violation ofSection 5 ofthe Securities A ctof
18 1933 (çtsecuritiesAct''). Thefactsofthiscaseare more than Gnotprecisely
19 identicalto thoseofpriorreported caseswhere defendantswereheld to be
20 necessary participantsand substantialtkctorsin unregisteredofferings''(Plaintiffs
21 Reply,l:7-1:9).Viewedin thelightmostfavorableto Defendant,thefactsofthis
22 case(andthenonexistenceofcertainfacts)establishthatnoactionsofDefendant
23 have m ade him either a Gnecessary participanf'or a Gsubstantialfactor''in
24 the distribution ofC M K M stock. The requirem entto prove otherwise presents a
25 genuine issue fortrial.
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 Case 2:08-cv-00437-LRH-RJJ Document 171 Filed 01/18/11 Page 3 of 11

1 Second,Plaintiffargues thatD efendant'sreliance on otherpartiesto conduct

2 inquiries w ith respectto the salesofC M K M stock by John Edw ards is nota valid
3 aftirm ative defense. H ow ever,by focusing on the form ofthe defense,Plaintiff
4 overlooksthe substance ofthe disputed issue,which isthatthe prim ary duty to
5 inquire rested w ith parties other than D efendant.
6 Third,PlaintiffarguesthatD efendanthas failed to m eethis burden to show
7 thatPlaintiff'sapproximation ofhisill-gotten gainsisnotreasonablebecause(a)
8 D efendanthas notpresented an alternative calculation ofhis gains from the illegal
9 conduct;and (b)hisnonreceiptoffundsbasedonhisownership interestin
10 N evW estis unsupported by evidence. W hatPlaintiff failsto acknow ledge is that
11 its calculation isarbitrary and presents no evidence ofany m aterialgain received
12 !by Defendantthatiscausally related to theviolation.Thus,theamountof
.

13 .disgorgem entsoughtalso rem ains a genuine issue fortrial.

I
14 I Based onDefendant'sM emorandum and supplementalpointsand
15 authorities and argum entcontained herein,D efendantsaffirm s thatPlaintiff isnot
16 entitledto summaryjudgmentasamatteroflaw.
17 i II.ARG UM ENT
l8 1 A PlaintiffH asto Prove FactsE videncina ThatD efendantA cted in
'

19 iViolationofSection5oftheSecuritiesAct.
1 .
20 1 SEC v.Jvurphy,626 lE.2d 633(9thCir.1980)isthesubstantiveauthority
21 w ith respectto the standard For attaching liability forviolations of Section 5 ofthe
22 SecuritiesA ct. D iscussing participantliability forregistration violations,the
23 M urphy courtacknow ledged tw o tracks,along w hich thatdoctrice developed.

24 Hunderthefirsttrack,adefendantisliableiftheinjuryto theplaintiffflowed
25 directly and proxim ately from theactionsofthedefendant....ln assessing
26 proxim ate cause,courts focus firston whethera defendant'sacts w ere the actual

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 Case 2:08-cv-00437-LRH-RJJ Document 171 Filed 01/18/11 Page 4 of 11
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1 causeoftheinjuly,i.e.,whetheributfor'thedefendant'sconduct,therewould
2 havebeenno sale....(However,)(bleforeaperson'sactscan beconsideredthe
3 proxim ate cause ofa sale,hisactsm ustalso be a substantialfactorin bringing
4 aboutthetransaction....Thus,a defendantwillbe held liable asaparticipant...if
5 hisactsw ereboth necessary to and asubstantialfactorin the salestransaction.''
6 Murphy 626 F.2d 650(9thCir.1980),emphasisadded,citationsomitted.
7 . The second track ofparticipantliability discussed in M urphy involves those
8 hw ho had a necessary role in the transaction. çf-l-histnecessary'participanttestis
9 equivalentto the firstprong oftheproximate cause analysis...:h essentially asks
10 whether,butforthe defendant'sparticipation,the sale transaction w ould nothave
ll taken place. C onceivably,thisbroaderstandard could encom pass a party w hose
12 acts in furtherance ofthe distribution w ere de m inim is and w ho should notbe held
13 liable forregistration violations....Butin practice,the standardsdifferlittle,for
14 no courtusing the tnecessary participant'testhas found liable a defendantw hose
15 acts w ere nota substantialfactorin the sales transaction''M urphy 626 F.2d 65 1-
16 652 (9th Cir.1980),emphasisadded,citationsomitted.
l7 ThecourtinSEC v.Rogersfoundthatiûlwlhile çsubstantialparticipation'is
18 a conceptw ithoutprecise bounds,previous cases suggestthatone w ho plans a
19 schem e,or,atthe least,is 1,substantialm otivating factor behind it,w illbe
20 held liableasa seller....Fringeparticipants,although possibly liable asaidersand
21 abettors,are notliable as sellers under section 5''SE C v.Rogers,790 F.2d 1450
22 (9th Cir.1986),citingAndersonv.Aurotek,774 F.2d927 (9th Cir.1985)and
23 Admiralty Fundv.Tabor,677F.2d 1297,1299 (9th Cir.1982),emphasisadded.
24 There isno argum entthatboth directand indirectparticip m ts m ay be liable
25 forSection 5 violations. Nevertheless,underthe ççnecessary participant''and
26

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1 ççsubstantialfactor''standard,itisactionsthatestablish such liability.' Plaintiffin

2 this litigation presents no evidence thatDefendantcom m itted any violative acts.
3 lnstead,Plaintiffattemptsto attach liabilitytoDefendantbased on(a)Defendant's
4 non-exclusive controlrelationship ofN evW estSecurities Com oration,w hich w as
5 ostensibly one ofm any interm ediaries,through w hich sales ofCM K M shares took
6 place(Defendant'sM emorandum,FactsA-21;acknowledged in PlaintifpsReply,
7 page 7,n.3),and (b)Defendi
m t'snon-exclusiveinaction afterleanzingofcertain
8 facts surrounding the sales. W ithin the established intep retation ofM urphy2,no
9 actions of D efendantm ade him even a Jc m inim is participant. B y equating
10 inaction w ith indirectparticipation,Plaintiffdeparts from the estatblished
11 interpretation. Such departure,ifaffirm ed by this Court,w ould constitute creation
12 of new Iaw . This alone is sufficientto deny Plaintiffs m otion forsurnm ary
13 judgment.M ostimportantly,however,ttltlheproximatecauseanalysisrequired by
14 M urphy and V dmiralty Fzfrs:ïv.Jones,677 F.2d 1289 (9th Cir.lj'82)1usually
15 involvesaquestion offactforthejury''Andersonv.Aurotek,774 F.2d927(9th
16 Cir.l985)citing W .Prosser,Handbook oftheLaw ofTorts,289-90 (4th ed.1971),
17 em phasisadded.
l8

19 l ''Thetestiswhethertheinjuryto theplaintifftlowed directly and

ztj proxim ately from the actions ofthe defendant''A nderson v.Aurotek,774
F.2d927(9th Cir.198.'
5)citingAdmiralty Fund v.Jones,677F.2d 1289,
21 1294(9th Cir.l982),emphasisadded.
22 2 See,forexam ple, SEC v.Holschuh,694 F.2d 130,37(7th Cir.1982),
em phasis added:tçln short,the evidence show sthatM r.H olschuh's actions,
23 far from being unw itling orde m inim is,had intim ately involved him in the
24 detailsofnum erousstagesofagreaterplan,ofwhich hehad in factbeen a
designer,and w hich he knew w as calculated tow ard a hurried issuance of
25 new securities. W e conclude thatthe factshereare m oretllan sufficientto
show thatM r.H olschuh w as a çnecessary participant'and isubso ntial
26 factor,in the unlawfulsalestransactions.,,

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l B .PlaintiffH asFailed to Establish D efendant's Prim ary R esoonsibiliw for

2 C onductinu lnauiries w ith R espectto the Sales ofCM K M Stock.
3 PlaintiffarguesthatD efendant'sreliance on otherpartiesto conduct
4 inquiries w ith respectto the qales ofC M K M stock by John Edw ards isnota valid
5 aftirm ative defense. H owever,even ifthatdefense fails,Plaintiff stillhasto
6 dem onstrate thatitw as D efendant'sprim ary duty to conduct such inquiries.
7 The duty to inquire by brokers features prom inently in Seccion 5
8 enforcem entactions. How ever,courts have established thatthe prim ary duty to
9 inquire rests w ith the investm entexecutive. ttA n investm entexecutive ...has the
10 prim ary responsibility to preventillegalsales ofrestricted or controlstock''
1l Wonsoverv.SEC,205 F.3d408(D.C.Cir.2000),quoting from PaineW ebber's
l2 R ule 144 M anual.
13 In K ane v.SEC,the courtspecitically stated thattisection 5 liability extends
14 to those persons w ho are uniquely positioned to ask relevantquestions,acquire
15 m aterialinformation,ordisclose theirfindings....Such liability encouragesthose
16 partiesw ho can m ostefficiently obtain inform ation and disclose it,to do so,
l7 w hile notpenalizing m ere interm ediariesw ho w ould notnonnally be expected to
18 inquireordisclose''Kanev.SEC,842F.2d 194,(8thCir.1988),citing Wasson v.
19 SEC,558F.2d879,886 (8thCir.1977),emphasisadded.
20 Plaintifl-has failed to introduce any evidence thatD efendantw asuniquely
21 positioned to ask relevantquestions,acquire m aterialinform ation,ordisclose
22 findings. Thus,the extentofDefendant'sduty to inquireand whdherhe satisfied
23 such duty by relying on othersrem ains a genuine issue ofdispute.
24

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26

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1 C.PlaintifpsCalculation ofDiszoraem entisArbitra!v ani.isnota

2 Reasonable A rm roxim ation ofD efendant's M aterialG ain C ausally Related to the
3 A lleaed W ronzdoina.
4 Courts have consistently upheld in the pastthatççdisgorgem entm ay notbe
5 used punitively''and thatitappliesonly to Gproperty causally related to the alleged
6 w rongdoing''SE C v.FirstCR/yFinancialCory ,890 F.2d 1215, (231
.

7 (D.C.CiI-.1989).Asaresult,tçwherebenefitsresultfrom both lawfuland unlawful

8 conduct,the party seeking disgorgem entm ustdistinguish between thelegally and
9 illegally derived protks''CFFC v.British Am erican Options Cor1).,788 F.2d 92
10 (2dCir.1986).
11 D efendanthasprovided evidence ofallsourcesofhis incom e during the
12 relevanttimeframe(Defendant'sM emorandum,FactsA-23 and13-2).Plaintiff
13 doesnotattem pteven a superticialshowing ofwhat,ifany,portion ofDefendant's
14 incom e was derived from the salesofCM K M stock by John Edw ards. lnstead,it
15 points sim ply to the proceedsfrom the salesretained by N evW estSecurities
16 Com oration and argues thatD efendantsom ehow derived a m aterialbenefitfrom
17 his m inority ow nership stake in a non-public entity w ith approxirnately 80
18 shareholders,w hich canied outno director indirectdistributions to its com m on
19 shareholdersthrough dividendsorotherw ise during the relevanttim efram e.
20 PlaintifThas specifically acknow ledged the factthatD efendant shared in a
21 poolofcom m issions notderived from the sales ofC stock by John Edw ards
22 (PlaintifpsReply,14 n.4).Based on thatacknowledgement,itwaspresumably
23 D efendant's salary thatw as som ehow causally related to the alleged w rongdoing in
24 this case. H ow ever,D efendantgssalary w as unaffected by the sales ofC M K M
25 stock by John Edwardsand rem ained unchanged atthe Ievelof$36,000 a year
26 during 2002-2005(SeeExhibit4toDeclaration ofDefendantSergey Rumyantsev

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 Case 2:08-cv-00437-LRH-RJJ Document 171 Filed 01/18/11 Page 8 of 11

1 in SupportofM em orandum in Opposition to PlaintiffSecuritiesand Exchange

2 Com m ission'sM otion forSlzm m ary Judgm entfiled on oraboutD ecem ber28,
3 2010,pages103-106).
4 Plaintilr s sG tem entthatits calculation is itm odest''defies com m on sense,as
5 the calculated am ountof$34,552.28 equalsalm ostthe entire Defendant's
6 annualsalary during the relevanttim efram e and,as such,is com pletely
7 unreasonable.
8 Based on the foregoing,Plaintiffhas failed to presentevidence ofa
9 tçreasonable approxim ation''ofD efendant's ill-gotlen gains. Consequently,the
10 am ountofdisgorgem entrem ains a genuine issue fortrial.
1l 111.CO N CLU SIO N

12 For the reasons stated above,and forany otherreason thatthe Courtm ay

13 deem justandproper,DefendantSergeyRumyantsev respectfullyrequeststhatthe
14 Courtdeny Plaintiffsmotion forsummaryjudgment.
l5

16 D ated;January 18,2011. Respectfully subm itted,

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19 Sergey Ru ev, fendantpro se

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1 SEC v.C M K M D IA M O N D S,IN C .,etaI.

2 U nited StatesD istrictC ourt- D istrictofN evada
CaseNo.2:08-CV-00437-LRH-RJJ (LA-30211)
3
CERTIFICA TE O F SER V IC E
4
5 lcertify thatthis docum entw as served on the follow ing via electronic and U .S.
m ailon January 18,20ll:
6
7 M olly M .W hite
K aren M atteson
8 Securities and Exchange Com m ission
9 5670 W ilshire Boulevard, l1th Floor
Los A ngeles,California 90036-3648
10 E-mails:urhitelmtki'
;sec.gtlv&àlnatlesonk/lsec.gov
11 AttorneysforthekJr
12 lrving M .Einhorn,Esq.
Law O fficesoflrving M .Einhorn
13 1710 10th Street
14 M anhattan Beach,CA 90266
Elnail:illle JleinllornIasv.corr
l
15 Attorneyfor'DefendantJohn'Edwards
l6
M ark S.D zarnoski,Esq.
17 G ordon & Silver,Ltd.
18 3960 H ow ard H ughes Parkw ay,N inth Floor
LasV egas,N V 89169
19 Email:llldzal-lloskildlgtll-dtèlasilver.coln
20 AttorneyforHelenBagley (z,q# 1stGlobalStock TransferLLC
21 U rban A .C asavant
R R 5 Site 16 Box 29
22 Prince A lbert, Saskatchew an S6V 5R3
23 C anada
Em ail:tlcasaA'allt#/r
'
isllaN&'.c:ï
a4 =''

25
26

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 Case 2:08-cv-00437-LRH-RJJ Document 171 Filed 01/18/11 Page 10 of 11

1 John W esley Hall,Jr.

131l S.Broadw ay
2 Little Rock A rkansas 72202-4843
,
3 e-lnail:l''orl'
lal1JlaoI,colu
4 AttorneyforDefendantBrianDvtprtz/c
5 K athleen Tom asso
9580 Lake Serena Drive
6 B oca Raton, FL 33496
7 Elnail:tttllllasskltk'jlllct-
gctlkllllk.col'
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8 A nthony Tom asso
9 9580 Lake Serena D rive
B oca Raton,FL 33496
10 Elnail:tttllllassiotkf.
'lRct-
gcolllllï.colla
11 A
nthony Santos
12 6965 N orth D urango D rive,Suite 1115-381
Las V egas,N V 89149
13 Email.
.A lms nvvstk-tglmail,col
, .
n
14
N evW estSecurities C orporation
15 c/o A nthony Santos
l6 6965 N orth D urango D rive,Suite 1115-381
Las V egas,N V 89149
17 Email:Alris.llvvsttitlglmail.c0I
M
18
D ouglas E.G riftith,Esq.
19 Kesler& Rust
M clntyre Building,2ndFloor
20 68 S. M ain Street
21 SaltLake City,U T 84101
Ernail:dgriffithïi'
lkesler-rtlst.colu
22 Attorneyfor17J,:y/Anderson
.

23
Eric N .K lein,Esq.
24 Eric N K lein & A ssociates,P.A .
.

25 1200 N .FederalHighway,Suite200
B oca Raton,FL 33432
26 Enzail:enkqjh
-lkleilzkltttll'neys.tltllm
.

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3 222 Lakeview A venue,//160
W estPalm B each,FL 33401
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