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United States Securities and Exchange Commission v. Bluestein

United States District Court, Eastern District of Michigan, Southern Division

March 18, 2015

United States Securities and Exchange Commission, Plaintiff,
v.
Frank Bluestein, Defendant.

R. Steven Whalen, Magistrate Judge.

ORDER ACCEPTING AND ADOPTING REPORT & RECOMMENDATION

Sean F. Cox U.S. District Judge.

This is a civil securities fraud case. This matter is before the Court on Defendant’s Pro Se Motion for Relief from Judgment Pursuant to Federal Rule of Civil Procedure 60(b). (Doc. #63). Magistrate Judge Whalen issued a January 27, 2015 Report and Recommendation (“R&R”) wherein he recommends that Defendant’s motion be denied. (Jan. 27, 2015 R&R, Doc. #67). For the reasons set forth below, the Court shall ACCEPT AND ADOPT Magistrate Judge Whalen’s January 27, 2015 R&R and DENY Defendant’s Motion for Relief from Judgment.

I. BACKGROUND

On September 28, 2009, Plaintiff United States Securities and Exchange Commission (“SEC”) filed its Complaint against Defendant Frank Bluestein (“Defendant” or “Bluestein”), alleging that Bluestein was the “single largest salesperson” in a Ponzi scheme that fraudulently netted millions of dollars in investments, mostly from elderly and retired individuals, in violation of several sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. (Doc. #1). SEC sought a permanent injunction against Defendant as well as money damages representing disgorgement of profits. All pretrial matters were referred to Magistrate Judge R. Steven Whalen pursuant to 28 U.S.C. § 636(b)(1)(A)&(B). (Doc. #29).

On October 24, 2012, the parties engaged in a settlement conference before Magistrate Judge Whalen. (See Conf. Transcript, Doc. #51). Defendant was represented by counsel. As a result of the settlement negotiations, Defendant “agree[d] to have entered a permanent injunction against the offenses” alleged in the Complaint. (Conf. Trans., Doc. #51 at 4). At the hearing, defense counsel asked Defendant whether he understood that he was consenting to being “permanently barred from the securities industry including all exchanges.” (Doc. #51 at 5-6). Defendant replied, “Yes.” (Doc. #51 at 6). Defendant stated that he had reviewed the injunction and understood its terms. (Doc. #6). The parties agreed that “the financial aspect” of the case, i.e. the issue of money damages, remained unresolved and was not included in the partial settlement agreement. (Doc. #51 at 7).

Defendant was also informed that, after this Court issued the injuction, Defendant would have sixty (60) days to provide certain financial records to the SEC in order to facilitate settlement of the money damages portion of this case. (Doc. #51 at 8). Magistrate Judge WHalen informed Defendant that, if the parties had not settled the money damages issue within sixty days, Defendant would have time to respond to the SEC’s pending summary judgment motion (SEC MSJ, Doc. #45). (Doc. #51 at 9). Defendant indicated that he understood how the case would proceed after the October 2012 settlement conference. (Doc. #51 at 9).

Magistrate Judge Whalen further acknowledged that Defendant’s counsel had filed a motion to withdraw. (Doc. # 51 at 11; Motion to Withdraw, Doc. #47). Magistrate Judge Whalen stated that he would grant defense counsel’s motion, but it would not be effective until after this Court signed the injunctive order. (Doc. #51 at 11). Magistrate Judge Whalen then told Defendant that he would give him thirty (30) days to find another lawyer, and that if Defendant was unable to do so, he would have to proceed pro se, i.e. represent himself. (Doc. #51 at 11). Magistrate Judge Whalen told Defendant to provide the Court with his current address and telephone number. (Doc. #51 at 12).

On November 30, 2012, Magistrate Judge Whalen granted defense counsel’s motion to withdraw from the case. (Doc. #52). Magistrate Judge Whalen also ordered that, if the parties had not settled the money damages issue, Defendant’s response to the pending motion for summary judgment was due no later than January 21, 2013. (Doc. #52).

On February 11, 2013, SEC filed a “Reply” to its original motion for summary judgment. (Reply to MSJ, Doc. #54). SEC stated that it had made several attempts to contact Defendant, both by telephone and by mail, but that Defendant had not responded to any of the telephone messages or correspondence. (Doc. #54 at 2). Further, Defendant had not filed a response to SEC’s motion for summary judgment.

On April 24, 2013, this Court adopted Magistrate Judge Whalen’s March 7, 2013 R&R (Doc. #55) granting SEC’s Motion for Summary Judgment and granting SEC’s motion for permanent injunction based on consent. (April 24, 2013 Order, Doc. #57).[1] This Court also scheduled a status conference for May 6, 2013. (Doc. #58). The April 24, 2013 Order, along with a Notice to Appear, was mailed to Defendant at his last known address in Northville, Michigan. The mail was returned as undeliverable. (Doc. #59).

Defendant failed to appear on May 6, 2013. This Court entered final judgment against Defendant on the same date in the amount of $3, 603, 538.90, along with prejudgment interest in the amount of $838, 932.24. (Doc. #61). The judgment was mailed to Defendant at his last known address in Northville, Michigan. The mail was returned as undeliverable with the following note: “MOVED LEFT NO ADDRESS UNABLE TO FORWARD RETURN TO SENDER.” (Doc. #62).

On May 7, 2014, Defendant filed a Motion for Relief from Judgment Pursuant to Federal Rule of Civil Procedure 60(b). (Doc. #63). This filing appears to be the first time that Defendant has participated in this litigation since October of 2012. In his motion, Defendant argues that he is entitled to relief from this Court’s May 6, 2013 Judgment because it was entered “without any type of hearing or due process protections.” (Doc. #63 at 11).

Defendant also argues that the judgment should be vacated because his counsel ineffectively represented him at the October 2012 settlement conference. Defendant appears to be arguing that he did not know the SEC was pursuing a ...


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