(CN) – A federal judge in Manhattan granted a default judgment against two Dutch nationals whose only response to the SEC’s inside-trading claims was to refuse U.S. jurisdiction.
U.S. District Judge Denise Cote said the Amsterdam residents have repeatedly refused to participate in the litigation or confer with opposing counsel since the 1998 lawsuit was modified in 2007.
Judge Cote said the harsh sanctions imposed against H.J.M. de Boer and Franck Hakkert were not simply to penalize them, “but to deter those who might be tempted to such conduct.”
The SEC had accused Euro Security Fund of illegally buying a substantial amount of stock in Elsag Bailey Process Automation N.V. through a Swiss brokerage, based on inside information.
Hakkert, whose brother worked for Elsag, urged de Boer to follow his lead and scoop up call options from the company. They bought their options one day before ABB Asea Brown Boveri announced its offer to buy Elsag, raising the stock price from $19 to $21 per share to $36.
The SEC sued Hakkert and de Boer for securities violations in 1998, asserting jurisdiction over the case, because Elsag’s stock traded exclusively on the New York Stock Exchange.
The Dutch natives sent a letter to Judge Cote explaining their purchase of Elsag stock, saying they “put their fullest trust in American jurisdiction, but do not recognize the judgment in a case against defendants of a foreign nation.”
After the complaint was modified in January 2007, the attorney for the Dutch defendants told the SEC that his clients refused to participate in the litigation.
Hakkert and de Boer failed to appear for a scheduled conference and didn’t make any arraignments to appear by phone. They also missed a deadline to provide disclosures, didn’t respond to the SEC’s request for discovery, and refused to participate in conference call to discuss the commission’s discovery documents.
“They have offered no reason for their repeated refusal to respond to the SEC’s discovery request and attempts to confer,” Judge Cote wrote.
Even after warnings of an impending default judgment, the defendants’ only response was a letter declining a settlement and again challenging U.S. jurisdiction.
Judge Cote called this claim “meritless,” and said the defendants effectively stalled the investigation for more than two years.
“[D]efendants’ utter refusal to participate in the litigation … and their defiance of several court orders has frustrated all attempts to resolve this already aged case,” Cote wrote.
The judge said the imposition of severe sanctions “comes only when the backs of counsel and the litigants were against the wall.”