The case against Magna just got bigger. Janua

The case against Magna just got bigger.

January 29, 2021
By ECF
Hon. Loretta A. Preska
United States District Judge
United States District Court for the
Southern District of New York
Daniel Patrick Moynihan U.S. Courthouse
500 Pearl Street
New York, NY 10007
Re: SEC v. Joshua Sason, et al., 19 Civ. 1459 (LAP) (S.D.N.Y.)
Dear Judge Preska:
Plaintiff Securities and Exchange Commission (the “Commission”) respectfully submits this
letter to give notice to the Court and to Defendants that the Commission will seek disgorgement
and all other applicable equitable relief based on the ten-year statute of limitations that now applies
to certain claims for relief in this case.
On January 1, 2021, in Section 6501 of the National Defense Authorization Act for Fiscal
Year 2021, Pub. L. No. 116-283 (the “NDAA”), Congress amended the statute of limitations for
certain Commission claims for relief. Among other provisions, that statute amends Section 21(d) of
the Securities Exchange Act of 1934 (“Exchange Act”) by establishing a ten-year statute of
limitations for Commission disgorgement claims based on certain securities law violations, including
claims under Exchange Act Section 10(b) [15 U.S.C. § 78j(b)], Section 17(a)(1) of the Securities Act
of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)(1)], and “any other provision of the securities laws for
which scienter must be established.” NDAA, Section 6501(a)(3), to be codified at 15 U.S.C. §
78u(d)((A)(ii). The NDAA also establishes a ten-year statute of limitations for Commission claims
for other equitable relief such as injunctions and bars. Id., to be codified at 15 U.S.C. § 78u(d)((.
Finally, the NDAA provides that its provisions “shall apply with respect to any action or proceeding
that is pending on, or commenced on or after, the date of enactment of this Act.” NDAA, Section
6501(b) (emphasis added).
The NDAA therefore extends to ten years the statute of limitations for the Commission’s
disgorgement claim against defendant Magna Management LLC (f/k/a Magna Group, LLC)
(“Magna”) based on its violations of Exchange Act Section 10(b), Rules 10b-5(a) and (c), and
Securities Act Section 17(a)(1). The Commission intends to seek disgorgement from Magna based
on ill-gotten gains the Complaint alleges that Magna obtained between approximately December 19,
Case 1:19-cv-01459-LAP Document 92 Filed 01/29/21 Page 1 of 2
Hon. Loretta A. Preska
January 29, 2021
Page 2
2012, and February 15, 2013—disgorgement that was time-barred under the previously applicable
five-year statute of limitations, as tolled by the parties’ tolling agreements.1

As background, the Commission filed its Complaint on February 15, 2019. In relevant part,
the Complaint alleges that Magna violated Exchange Act Section 10(b), Rules 10b-5(a) and (c)
thereunder, and Securities Act Sections 17(a)(1) and (3), in connection with two sham promissory
note transactions involving the penny stock issuer Lustros, Inc. (“Lustros”). The Complaint alleges
that Magna purchased these sham notes from a company that was purportedly unaffiliated with
Lustros but was in fact controlled by Lustros executives, which Magna then converted into Lustros
stock and sold to unsuspecting investors. (See Compl. ¶¶ 48–92, Dkt. No. 1.) With respect to the
first sham note transaction, the Complaint alleges Magna acquired more than 1.1 million shares of
Lustros stock, which it sold between December 19, 2012, and June 21, 2013, for total proceeds of
$693,521.18. (Id. ¶ 88.) Of these amounts, the Complaint alleges Magna sold approximately 300,000
of these shares, for proceeds of $276,173.01, between December 19, 2012, and February 15, 2013—
before the prior five-year statute of limitations period for the Commission’s claim for disgorgement,
as tolled by the agreements Magna executed, began on February 16, 2013. (See id. ¶¶ 50 n.1, 88.)
In its January 2020 decision on Defendants’ motions to dismiss, the Court sustained the
Complaint’s fraud claims against Magna premised on the first (and second) sham Lustros note
transactions, among other claims.2
(See Mem. & Order at 16–22, 34, Dkt. No. 67.) Magna’s first
Lustros-related sham note transaction has therefore already been a focus of both document and
deposition discovery, which remains ongoing.
Respectfully submitted,
/s/ Lee A. Greenwood
Lee A. Greenwood
Senior Trial Counsel
cc: All counsel of record by ECF

1
The amended statute of limitations for disgorgement claims is not relevant to the remaining
defendants, either because the Commission does not seek disgorgement from them (defendant Marc
Manuel) or has no claim against them under any “provision of the securities laws for which scienter
must be established” (all defendants other than Magna and Manuel).
2
In its opposition to Defendants’ motions to dismiss, the Commission noted, given the thenapplicable five-year statute of limitations for disgorgement, that the Commission was “not asserting
any claims based on the sales of Lustros stock that pre-date February 16, 2013,” but that “these
additional transactions, however, are relevant to the Commission’s claims for injunctive relief.”
(Opp’n at 9 n.4, Dkt. No. 61.) Given the amended statute of limitations, the Commission
respectfully withdraws that statement to the extent it concerns the Commission’s disgorgement
claim against Magna.
Case 1:19-cv-01459-LAP Document 92 Filed 01/29/21 Page 2 of 2