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Case 6:09-cv-01963-JA-GJK Document 169

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UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION ) ) ) ) ) ) CASE NO. 09-cv-1963-Orl-28GJK ) ) ) ) ) ) )

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. BIG APPLE CONSULTING USA, INC., et al., Defendants

PLAINTIFFS MEMORANDUM IN OPPOSITION TO DEFENDANT KEITH JABLONS REQUEST TO HAVE THE JURY VERDICT OVERTURNED BASED ON FEDERAL RULE OF CIVIL PROCEDURE 50

Of Counsel Thomas A. Sporkin David R. Herman

Jeffrey T. Infelise Assistant Chief Litigation Counsel D.C. Bar No. 456998 Lead and Trial Counsel Duane K. Thompson Assistant Chief Litigation Counsel 100 F Street, N.E. Washington, DC 20549-4010 Attorneys for Plaintiff, Securities and Exchange Commission

February 21, 2012

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TABLE OF CONTENTS TABLE OF AUTHORITIES ........................................................................................................ ii ARGUMENT ................................................................................................................................. 1 SUMMARY OF ARGUMENT ..................................................................................................... 1 MEMORANDUM OF LAW ......................................................................................................... 5 I. II. BACKGROUND ............................................................................................................... 5 ARGUMENT ..................................................................................................................... 7 A. B. Standards For Rule 50 and Rule 59 Motions ......................................................... 7 There Was A Legally Sufficient Basis For the Jurys Verdict Against K. Jablon ..................................................................................................................... 9 1. K. Jablon May Be Held Liable For His Role In The Fraudulent Scheme Initiated by Plant ...................................................................................... 10 The Evidence Presented Provided A Legally Sufficient Basis For The Jury To Conclude That K. Jablon Acted With Scienter ................... 13

2.

C.

The Evidence Presented Warranted Instructing The Jury On Deliberate Ignorance ............................................................................................ 18

CONCLUSION ............................................................................................................................ 19

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TABLE OF AUTHORITIES FEDERAL CASES Beach-Mathura v. American Airlines, Inc., No. 08-21925-civ, 2010 WL 1038563 (S.D. Fla Mar. 19, 2010) .......................................................................... 9 Brown v. Alabama Department of Transp., 597 F.3d 1160 (11th Cir. 2010) ................... 8 Chaney v. City of Orlando, Fl., 483 F.3d 1221 (11th Cir. 2007) ...................................... 8 Garcia v. Reed, 227 F. Supp. 2d 1183 (D.N.M. 2002) ................................................... 19 Lippardt v. Durango Steakhouse of Brandon, Inc., 267 F.3d 1183 (11th Cir.2001) ............................................................................................................. 8 Mahaffey v. Ramos, 588 F.3d 1142 (7th Cir. 2009) ....................................................... 18 Mee Industrial v. Dow Chemical Co., 608 F.3d 1202 (11th Cir. 2010) ........................... 8 Montgomery Ward & Co. v. Duncan, 311 U.S. 243 (1940) ............................................. 9 Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133 (2000) ..................... 7, 8, 18 SEC v. Huff, 758 F. Supp. 2d 1288 (S.D. Fla. 2010), aff'd 2012 WL10862 (11th Cir. 2012) (per curiam) .................................................................................... 16 SEC v. Monterosso, 678 F. Supp. 2d 1244 (S.D. Fla. 2011) .......................................... 10 SEC v. U.S. Envtl., 155 F.3d 107 (2d. Cir. 1988) .......................................................... 10 Swanigan v. Trotter, 645 F. Supp. 2d 656 (N.D. Ill. 2009) ............................................ 18 United States v. Amerson, 185 F.3d 676 (7th Cir. 1999) ............................................... 19 United States v. Gruenberg, 989 F.2d 971 (8th Cir. 1993) ............................................. 10 United States v. Honea, 660 F.3d 318 (8th Cir. 2011) .............................................. 16, 17 United States v. Hristov, 466 F.3d 949 (11th Cir. 2006) ................................................ 16 United States v. Persky, 520 F.2d 283 (2d Cir. 1975) .................................................... 10 Woodward v. Metropolitan Bank of Dallas, 522 F.2d 84 (5th Cir. 1975) ...................... 10 ii

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FEDERAL STATUTES AND RULES Securities Act Section 5 (a) and (c).....[15 U.S.C. 77e(a) and (c)] ............................................ 5 Section 17(a)........................... [15 U.S.C. 77q(a)] ................................................. 5, 9, 10 Section 17(a)(1).......................[15 U.S.C. 77q(a)(1)] ................................................... 6, 9 Section 17(a)(2).......................[15 U.S.C. 77q(a)(2)] ....................................................... 6 Section 17(a)(3).......................[15 U.S.C. 77q(a)(3)] ....................................................... 6 Exchange Act Section 15(a) ....[15 U.S.C. 78o(a)] ....................................................... 5 Section 10(b).[15 U.S.C. 78j(b)] ...................................................... 5, 6 Section 20(a).[15 U.S.C. 78t(a)] .......................................................... 5 Section 20(e).[15 U.S.C. 78t] ...................................................... 6, 11 Rule 10b-5.....[17 C.F.R. 240.10b-5] ................................................. 6 Rule 10b-5(a).....[17 C.F.R. 240.10b-5(a)] .......................................... 10 Fed. R. Civ. P. Rule 50 ................................................................................................................................ 7 Rule 50(a) ...................................................................................................................... 8, 19 Rule 50(b) ........................................................................................................................... 8 Rule 59 ................................................................................................................................ 8

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UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION ) ) ) ) ) ) CASE NO. 09-cv-1963-Orl-28GJK ) ) ) ) ) ) )

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. BIG APPLE CONSULTING USA, INC., et al., Defendants

PLAINTIFFS MEMORANDUM IN OPPOSITION TO DEFENDANT KEITH JABLONS REQUEST TO HAVE THE JURY VERDICT OVERTURNED BASED ON FEDERAL RULE OF CIVIL PROCEDURE 50 Pursuant to Rule 7 of the Federal Rules of Civil Procedure and Local Rule 3.01(b), plaintiff, the Securities and Exchange Commission (the Commission), submits its Memorandum in Opposition to Defendant Keith Jablons Pro Se Request for Judgment as a Matter of Law pursuant to Rule 50 of the Federal Rules of Civil Procedure. ARGUMENT SUMMARY OF ARGUMENT The Court specifically restricted the defendants written motion pursuant to Rule 50 (Rule) of the Federal Rules of Civil Procedure to the issue of the appropriateness of the deliberate ignorance instruction. Dkt. No. 139. However, Keith Jablons memorandum in support of his motion is devoted almost entirely to attacking the legal sufficiency of the evidence against him. Because these arguments violate the specific limitations the Court

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placed on the defendants written motion pursuant to Rule 50, the Court should refuse to consider Keith Jablons arguments concerning the sufficiency of the evidence. However, to the extent the Court agrees to consider these arguments, this memorandum in opposition includes the Commissions responses to Keith Jablons claims that the evidence was legally insufficient to support the verdict against him. Keith Jablons (K. Jablon) argument that he could not be found to have violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 20(e) of the Securities Exchange Act of 1934 (Exchange Act) because James Plant (Plant), not he, was responsible for the content of the press releases issued by CyberKey Solutions, Inc., (CyberKey) concerning the DHS purchase order misapprehends the nature of the claims against him and the law relating to those claims. K. Jablons liability for violating Section 17(a) of the Securities Act and Section 20(e) of the Exchange Act does not depend on whether Plant was ultimately responsible for the content of CyberKeys press releases. Rather, the issue is whether K. Jablon is liable because of the actions he took in furtherance of that scheme. The undisputed evidence established that K. Jablon, as vice president of Management Solutions, Inc. (MSI), played a significant role in the fraudulent scheme. The evidence established that MSI drafted press releases for CyberKey on a weekly basis and all the press releases issued by CyberKey directed anyone with questions to contact the investor relations department at Big Apple Consulting USA, Inc. (Big Apple). The evidence also demonstrated that K. Jablon was directly responsible for drafting the press releases 2

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concerning the alleged purchase order from the Military Post Exchange that transformed into the fictitious purchase order from the Department of Homeland Security (DHS) and that he provided specific guidance to Plant on when to issue CyberKeys press releases so the press releases could be used that same day to market CyberKey stock to broker/dealers. Further, the evidence demonstrated K. Jablon provided Plant specific guidance on what to include in the press releases concerning the DHS purchase. Finally, the evidence revealed that on at least one occasion K. Jablon directed individuals who worked in the investor relations department on how to respond to inquiries from investors claiming that DHS said it had no record of a purchase order issued to CyberKey. Based on the undisputed evidence presented at trial, a reasonable juror could conclude that K. Jablon played a substantial role in the fraudulent scheme and that he provided substantial assistance to CyberKey and Plant in conducting his fraudulent scheme. K. Jablons argument that even if he had any responsibility to ensure the accuracy of the press releases, he did not have actual knowledge of, and was not severely reckless in not knowing, the DHS purchase order was fictitious is contrary to overwhelming weight of the evidence introduced at trial. First, the undisputed evidence established that in October and November of 2005, K. Jablon prepared and forwarded to Plant three different drafts of a press release announcing that CyberKey had received a multi-million purchase order from the Military Post Exchange. On November 11, 2005, only four hours after K. Jablon provided Plant a draft of a press release announcing that CyberKey had received a purchase order from the Military Post Exchange, K. Jablon forwarded another draft press release announcing that 3

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CyberKey had received a $24.49 million purchase order from DHS. Further, the undisputed evidence demonstrated that by the Spring of 2006, K. Jablon actually had doubts about the validity of Plants claims of contracts with various companies including the Military Post Exchange and that, when he drafted the Broken Promises memo on July 13, 2006, he had questions about Plants reliability. K. Jablon admitted he was aware of the DHS inquiry on the same day it was received by Big Apple, and admitted that although Plant said he had taken care of the issue with DHS, K. Jablon had questions about whether Plant had really done as he said. Nevertheless, K. Jablon never followed up with DHS to determine if their questions had been answered. Also, K. Jablon did not send a copy of the DHS purchase order he claimed to have received from Plant to DHS and admitted that if he had done so, he would have found out in a few days that it was fraudulent. There also was uncontroverted evidence introduced that even after the August 8, 2006 inquiry from DHS, K. Jablon received additional information that would lead a reasonable juror to conclude that K. Jablon actually knew or was severely reckless in not knowing that the DHS purchase order was fictitious including the fact that despite repeated efforts, K. Jablon was unable to verify that CyberKey actually received a second payment from DHS. A reasonable juror could conclude from this evidence that K. Jablon actually knew the DHS purchase order was fictitious, intentionally closed his eyes to information that would have established conclusively that it was fictitious, or was severely reckless in not knowing. Therefore, the jurys verdict was consistent with the great weight of evidence presented and 4

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K. Jablons motion for judgment as a matter of law or, in the alternative, for a new trial, should be denied. MEMORANDUM OF LAW I. BACKGROUND On November 18, 2009, the Commission filed its complaint against defendants Big Apple, MJMM Investments, LLC (MJMM), Marc Jablon, Matthew Maguire (Maguire), Mark C. Kaley (Kaley) and K. Jablon. Dkt. No. 1. That complaint was based upon the defendants role in the fraud perpetrated by Plant and CyberKey from about November 2005 to about March 2007. The fraud involved an elaborate scheme to publicize a fictitious $25 million purchase order from the DHS. Dkt. No. 1, 1. That complaint alleged that all the defendants violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Dkt. No. 1. It also alleged that Big Apple, MJMM, Marc Jablon and Maguire violated Section 5(a) and (c) of the Securities Act and that Big Apple and MJMM were unregistered brokers and dealers in violation of Section 15(a) of the Exchange Act. Finally, the complaint alleged that Marc Jablon, Maguire and Kaley violated Section 20(a) of the Exchange Act by aiding and abetting Big Apples and MJMMs violation of Section 15(a) of the Exchange Act. Id. On March 29, 2011, the Commission filed a motion for partial summary judgment with respect to: the Section 5(a) and (c) claims against Big Apple, MJMM, Marc Jablon and Maguire; the Section 15(a) claims against Big Apple and MJMM; and the Section 20(a) claims against Marc Jablon, Maguire and Kaley. Dkt. No. 62. 5

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On July 28, 2011, the Commission requested leave to amend its complaint to: (a) include a claim that all the defendants violated Section 20(e) of the Exchange Act by aiding and abetting the violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by CyberKey and Plant; and (b) to withdraw its claims that all the defendants directly violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Dkt. No. 83. On August 25, 2011, the Court granted the Commissions motion. Dkt. No. 92. On that same date the Court granted the Commissions motion for partial summary judgment. Dkt. No. 91. Trial on the claims that all the defendants violated Section 17(a) of the Securities Act and Section 20(a) of the Exchange Act commenced on January 9, 2012 and both parties rested on January 17, 2012. Dkt. No. 17. On January 18, 2012, the Court provided instructions to the jury. Dkt. No. 136. The Courts instructions concerning Section 17(a)(1) and Section 20(e) included the following instruction on deliberate ignorance: Additionally, the SEC may prove a Defendant acted knowingly or recklessly by proving, by a preponderance of the evidence, that a Defendant deliberately closed his eyes to what would otherwise have been obvious to him. No one can avoid liability under the securities laws by deliberately ignoring what is obvious. You may infer knowledge of the existence of a fact if a Defendant was aware of a high probability of the existence of that fact and purposely contrived to avoid learning all the facts. If you find by a preponderance of the evidence that a Defendant intentionally avoided knowledge or enlightenment, you may find that Defendant acted knowingly or recklessly. Exh. A at pp. 26, 36-37 (Dkt. No. 138). On January 19, 2012, the jury returned a verdict in favor of the Commission, finding all the defendants violated Section 17(a)(1), (2) and (3) of the Securities Act and that all the defendants violated Section 20(e) of the Exchange Act . Exh. B (Dkt. No. 140). In response to specific interrogatories concerning the Section 20(e) 6

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claims, the jury found that all the defendants acted both with actual knowledge and with severe recklessness. Id. at 5, 10, 15, 20, 25, and 30. On that same day, the Court informed all the defendants that they would be permitted to file a Written Motion for Judgment as a Matter of Law regarding the deliberate ignorance instruction that did not exceed 20 pages. Dkt. No. 139. On February 1, 2012, Carl F. Schoeppl filed a motion to withdraw as attorney for defendants, Keith Jablon, Kaley and Matthew Maguire. Dkt. No. 144. On February 2, 2012, K. Jablon filed his Pro Se Motion for Judgment as a Matter of Law. Dkt. No. 146. Although K. Jablon only cites Rule 50 of the Federal Rules of Civil Procedure as the basis for his motion, he has requested that, in the alternative to granting judgment for him, as a matter of law, the Court should grant him a new trial. Def. Mem. at 2.1 Therefore, the Commission will assume that K. Jablons motion also is for a new trial pursuant to Rule 59. II. ARGUMENT A. Standards For Rule 50 and Rule 59 Motions

Under Rule 50, a court should render judgment as a matter of law when a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue. Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 149 (2000). When entertaining a Rule 50 motion this Court should review all the evidence of record and must draw all reasonable inferences in favor of

Def. Mem. at __, refers to Defendant Keith Jablons Pro Se Request for judgment as a matter of law pursuant to Rule 50 of the Federal Rules of Civil Procedure. 7

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the non-moving party, and it may not make credibility determinations or weigh the evidence. Id. at 150. Further, this Court should disregard all evidence favorable to the moving party that the jury is not required to believe. Id. at 151. In other words, this Court should give credence to the evidence favoring the nonmovant as well as that evidence supporting the moving party that is uncontradicted and unimpeached, at least to the extent that evidence comes from disinterested witnesses. Id. A Rule 50 motion should be denied if reasonable and fair-minded persons exercising impartial judgment might reach different conclusions. Mee Indus. v. Dow Chem. Co., 608 F.3d 1202, 121 (11th Cir. 2010). Consequently, judgment as a matter of law is appropriate only if the facts and inferences point [so] overwhelmingly in favor of one party . . . that reasonable people could not arrive at a contrary verdict. Brown v. Alabama Dept. of Transp., 597 F.3d 1160, 1173 (11th Cir. 2010). Under Rule 59, a party may seek a new trial on the grounds that the verdict is against the weight of the evidence, that the damages are excessive, or that, for other reasons, the trial was not fair to the party moving; and may raise questions of law arising out of alleged substantial errors in admission or rejection of evidence or instructions to the jury. Montgomery Ward & Co. v. Duncan, 311 U.S. 243, 251 (1940). A motion for a new trial should not be granted on evidentiary grounds unless, at a minimum the verdict is against the greatnot merely the greaterweight of the evidence. Lippardt v. Durango Steakhouse of Brandon, Inc., 267 F.3d 1183, 1186 (11th Cir. 2001) (quoting Hewitt v. B.F. Goodrich Co., 732 F.2d 1554, 1556 (11th Cir. 1984)). Where there is conflicting testimony and a jury must 8

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make credibility determinations, a jury verdict should not be disturbed if there is some support for the jurys decision. Beach-Mathura v. American Airlines, Inc., No. 08-21925civ, 2010 WL 1038563 (S.D. Fla. Mar. 19, 2010) (citing Quick v. City of Birmingham, 346 Fed. Appx. 494, 495 (11th Cir. 2009)). B. There Was A Legally Sufficient Basis For the Jurys Verdict Against K. Jablon

The basis of K. Jablons motion for judgment as a matter of law is not entirely clear. However, it appears he makes two arguments. First, K. Jablon appears to argue that he could not be found to have violated Section 17(a) of the Securities Act and Section 20(e) of the Exchange Act because Plant, not he, was responsible for the content of the press releases issued by CyberKey concerning the DHS purchase order. Def. Mem. at 4. Second, K. Jablon appears to argue that even if he had any responsibility to ensure the accuracy of the press releases, he did not have actual knowledge that the DHS purchase order was fictitious and was not severely reckless in not knowing. Def. Mem. at 7.2 K. Jablons first argument misapprehends the nature of the claims against him and the law relating to those claims and his second claim is contrary to overwhelming weight of the evidence introduced at trial.

In his memorandum in support of his motion, K. Jablon repeats, verbatim, the same two arguments with respect to each of the Section 17(a) claims and the Section 20(e) claim. Therefore, the Commissions argument is intended as a response to the arguments K. Jablon makes with respect to all the claims against him. 9

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1.

K. Jablon May Be Held Liable For His Role In The Fraudulent Scheme Initiated by Plant

As the Commission argued at trial, the fraudulent scheme in this case involved three interrelated actions: (1) the publicizing of the fictitious DHS purchase order to the public in general; (2) the promotion of CyberKey stock to registered broker/dealers based upon the press releases touting the fictitious DHS purchase orders; and (3) the use of MJMM and Big Apple as a conduit through which CyberKey could sell its stock into the market. In order to prove that K. Jablon was involved in a fraudulent scheme under Section 17(a)(1), it is sufficient to prove that he participated in the scheme or fraudulent conduct that involved the purchase or sale of a security. United States v. Gruenberg, 989 F.2d 971, 976 (8th Cir. 1993); United States v. Persky, 520 F.2d 283, 288 (2d Cir. 1975). Further, it is no defense to an overall scheme to defraud that K. Jablon was not involved in the scheme from its inception or played only a minor role. See SEC v. U.S. Envtl., 155 F.3d 107, 110 (2d. Cir. 1988) (trader who executes buy and sell orders that played role in manipulative scheme could be found to be a primary violator under Rule 10b-5(a)). In order to establish that K. Jablon aided and abetted CyberKey and Plant, it is sufficient to show that he provided substantial assistance to their violation of Section 10(b) of the Exchange Act and Rule 10b-5. Woodward v. Metro Bank of Dallas, 522 F.2d 84, 94-95 (5th Cir. 1975); SEC v. Monterosso, 678 F. Supp.2d 1244, 1269 (S.D. Fla. 2011). In this case, there was ample evidence introduced from which the jury could conclude that K. Jablon played an essential role in the fraudulent scheme to induce unsuspecting investors to purchase

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CyberKey stock. K. Jablons liability for violating Section 17(a) of the Securities Act and Section 20(e) of the Exchange Act does not depend on whether Plant was ultimately responsible for the content of CyberKeys press releases. The issue is not Plants liability for his role in the fraudulent scheme, but rather, whether K. Jablon is liable because of the actions he took in furtherance of that scheme. The undisputed evidence presented to the jury established that K. Jablon played a significant role in the fraudulent scheme. He was the vice president of Management Solutions International (MSI), a wholly owned subsidiary of Big Apple, Exh. C at 2, that drafted press releases for clients and operated an investor relations department that answered investors questions. Exh. D. at 13:25-14:4. The evidence established that MSI drafted virtually all the press releases issued by CyberKey, including those touting the fictitious purchase order from DHS. In fact, K. Jablon admitted that MSI prepared press releases for CyberKey on a weekly basis. Id. at 141:13-21. Moreover, all the press releases issued by CyberKey directed anyone with questions to contact the investor relations department at Big Apple. Exh. E. The evidence also demonstrated that K. Jablon was directly responsible for drafting the press releases concerning the alleged purchase order from the Military Post Exchange that transformed into the fictitious purchase order from DHS. Exhs. F-M. In addition, K. Jablon provided specific guidance to Plant on when to issue CyberKeys press releases. Exhs. G, I. K. Jablon directed Plant to put out CyberKeys press release at 8:31 a.m. because 11

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it permitted the press release to be disseminated to the employees in Big Apples call room so they could use it that same day to market CyberKey stock to broker/dealers. Exh. D at 44:2346:1. Further, K. Jablon provided Plant specific guidance on what to include in the press releases concerning the DHS purchase. For example, on March 28, 2006, Plant told K. Jablon that he had received a payment from $4.1 million. Exh. N. The next day K. Jablon told Plant to change the press release concerning the first payment to indicate it was for $4.2 million, so it was consistent with a previous press release CyberKey issued that stated the value of the shipment was $4.2 million. Exh. O; see Exh. E at 01392. Further, the undisputed evidence is that on at least one occasion K. Jablon directed individuals who worked in the investor relations department on how to respond to inquiries from investors claiming that DHS said it had no record of a purchase order issued to CyberKey. Exh. P at 16:3-13; 17:4-18:6; 36:12-38:6. Based on the undisputed evidence presented at trial, a reasonable juror could conclude that although Plant ostensibly was ultimately responsible for the contents of CyberKeys press releases concerning the fictitious DHS purchase order, K. Jablon played a substantial role in the drafting of those press releases and provided Plant guidance on what those press releases should contain and how they could be best utilized to market CyberKey stock. A reasonable juror could also conclude that these actions, along with K. Jablons direction on how to deflect investor inquiries about the DHS purchase order provided substantial assistance to Plant in conducting his fraudulent scheme. 12

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2.

The Evidence Presented Provided A Legally Sufficient Basis For The Jury To Conclude That K. Jablon Acted With Scienter

Contrary to K. Jablons argument, there was overwhelming evidence presented to the jury that K. Jablon actually knew or was severely reckless in not knowing the press releases that were being prepared by MSI by him or at his direction, concerning the DHS purchase order were false. First, the undisputed evidence is that in October of 2005, Plant told K. Jablon that CyberKey had received a purchase order from the Military Post Exchange. Exh. I. Based on that information, between October 18, 2005 and November 11, 2005, K. Jablon prepared and forwarded to Plant three different drafts of a press release announcing that CyberKey had received a multi-million purchase order from the Military Post Exchange. Exhs. G, H, L. Then on November 11, 2005, only four hours after K. Jablon provided Plant a draft of a press release announcing that CyberKey had received a $23.9 million purchase order from the Military Post Exchange, Exh. L, K. Jablon forwarded another draft press release announcing that CyberKey had received a $24.49 million purchase order from DHS. Exh. M. There was no evidence that CyberKey ever issued a press release concerning a purchase order from the Military Post Exchange and no evidence of any further discussion between K. Jablon about such a purchase order. A reasonable juror would conclude that the incredible transformation of a multimillion purchase order from the Military Post Exchange to a multi-million purchase order from DHS in about four hours would have put K. Jablon on notice that the legitimacy of the DHS purchase order was suspect. However, there was no evidence presented that

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notwithstanding the sudden and unexplained transformation of the purchase order, K. Jablon did anything to attempt to verify its validity. Further, K. Jablon testified that by the Spring of 2006, he actually had doubts about the validity of Plants claims of contracts with various companies including the Military Post Exchange. Exh. D at 87:20-89:3. He also admitted that when he drafted the Broken Promises memo on July 13, 2006, Exh. Q, he had questions about Plants reliability. Exh. D at 147:24-148:20. It is against the backdrop of K. Jablons suspicions about Plants reliability that the jury considered the evidence of inquiry from Mr. Masciocchi at DHS to Big Apple on August 8, 2006. Exh. R. K. Jablon admitted he was aware of the DHS inquiry on the same day it was received by Kelson Monks. Exh. D at 149:15-150:14. K. Jablon also admitted that although Plant said he had taken care of the issue with DHS, K. Jablon had questions about whether Plant had really done as he said. Id. at 156:6-15. Nevertheless, K. Jablon admitted that he never followed up with Mr. Masciocchi to determine if his questions had been answered. Id. at 154:9-11. Neither did K. Jablon send a copy of the DHS purchase order he claimed to have received from Plant to Mr. Masciocchi. Id. at 166:20-167:8. K. Jablon admitted that if he had sent a copy of the purported DHS purchase order to Mr. Masciocchi, he would have found out in a few days that it was fraudulent rather than in January or February of 2007 when trading of CyberKey stock was suspended by the Commission. Id. at 167:9-168:2. There also was uncontroverted evidence introduced that even after the August 8, 2006 inquiry from DHS, K. Jablon received additional information that would lead a reasonable 14

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juror to conclude that K. Jablon actually knew or was severely reckless in not knowing that the DHS purchase order was fictitious. K. Jablon admitted that by fall of 2006, he became inquisitive about the validity of the DHS purchase order. Id. at 60:1-14. He testified that after Plant told him CyberKey had received a second payment from DHS but did not issue a press release concerning that payment, K. Jablon contacted Thomas Heaton (Heaton), CyberKeys Chief Operating Officer, and asked him when CyberKey was going to issue a press release about the DHS payment. K. Jablon admitted that Heatons response was: What payment? Because I have no idea what youre talking about. Id. at 61:23-62:16. Despite all the information Jablon had that the DHS purchase order did not exist and despite his admitted misgivings about the validity of that purchase order and Plants reliability, the uncontroverted evidence was that K. Jablon did not make any attempt to verify the existence of the DHS purchase order from sources that were readily available to him. He did not attempt to contact Mr. Masciocchi at DHS even though he knew who he was and did not send a copy of the DHS purchase order to him. In addition, although K. Jablon claimed Plant told him that Kevin Sullivan assisted in obtaining the DHS purchase order, Exh. D at 163:8-17, he never contacted Mr. Sullivan to attempt to verify the existence of that purchase order. Id. at 163:18-21; Exh. S at 15:2-8; 18:1-6; 19:3-5; 19:25-20:5; 20:10-22:5. A reasonable juror could conclude from this evidence that if K. Jablon did not actually know the DHS purchase order was fictitious, he contrived to intentionally avoid knowledge of that fact by not making inquiries that would have disclosed its nonexistence. K. Jablons deliberate ignorance of the obvious is a legally sufficient basis to conclude he acted 15

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knowingly, or, at a minimum, with severe recklessness. United States v. Hristov, 466 F.3d 949, 952 (11th Cir. 2006); SEC v. Huff, 758 F. Supp.2d 1298, 1350 (S.D. Fla. 2010), affd 2012 WL10862 (11th Cir. 2012) (per curiam). Indeed, K. Jablons admission that had he sent a copy of the DHS purchase order Plant provided him to Mr. Masciocchi, he would have found out in a few days that it was fraudulent is an admission of his deliberate ignorance. See United States v. Honea, 660 F.3d 318, 329 (8th Cir. 2011) (defendants admission that if he had asked questions he would have found out about criminal conduct is an admission of deliberate ignorance). Finally, there also was evidence introduced that established unequivocally that K. Jablon was aware that the press releases that MSI was drafting for Plant contained misrepresentations about the DHS purchase order. K. Jablon claimed to have received a copy of the DHS purchase order from Plant in spring 2006. Exh. D at 163:24-164:5. He testified that he reviewed that purchase order and saw that it was from DHS. K. Jablon test: 164:20165:3. Further, Plant told K. Jablon that the first and second payment he received were from DHS. Exhs. N, T. According to K. Jablon, after the August 8, 2006 inquiry from DHS, Plant told him that DHS wanted him to delete any reference to DHS from the press releases and say only that the purchase order was from a large government entity. Exh. D at 158:7-23. However, the October 25, 2006 press release stated that CyberKey had received a $4.2 million payment from various government agencies. Exh. E at 01444. In fact, every press release issued by CyberKey after August 25, 2006, claimed that the company had received a multi-million purchase order from various segments of the U.S. Government or various 16

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government agencies. See Exh. E, at 01429 through 01478. Thus, even if the jury were to assume that K. Jablon believed Plants incredible story and set aside all his misgivings about the validity of the DHS contract, the jury could conclude that he knowing assisted Plant in drafting press releases that were fictitious because they claimed CyberKey had received a purchase order and payment from several government agencies when he knew that Plant claimed the purchase order and the payments were from only one agency DHS. K. Jablons attempt to argue that the jury could not reasonably have found he acted knowing or with severe recklessness because the evidence established he exercised due diligence in attempting to determine the validity of the DHS purchase order is dependent on disputed evidence and a disregard of evidence to the contrary. K. Jablon argues that his due diligence is proven by his call to Heaton to verify that CyberKey was receiving payment and shipping its products to DHS. Def. Mem. at 7. He claims that as a result of this call, Heaton called him back and verified that CyberKey had shipped product to DHS and had received payment. Id. There are two reasons that this evidence does not provide a sufficient basis to grant K. Jablon judgment as a matter of law. First, K. Jablon admitted the reason he called Heaton was to find out when CyberKey was going to issue a press release announcing the second payment from DHSnot to verify whether that payment had been received. Exh. D at 61:21-62:16. Second, K. Jablon testified that when he contacted Heaton about the second payment, Heaton said: What payment? Because I have no idea what youre talking about. Id. at 61:23-62:16. Marc Jablon testified that when his brother told him what Heaton had said he called Plant who confirmed 17

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CyberKey had received a second payment from DHS and he never heard anything else from Heaton. Exh. U at 182:14-25; 190:19-191:4. While Heaton testified he told Keith Jablon that CyberKey had received a second payment, the jury was free to reject Heatons selfserving testimony and believe the testimony of K. Jablon and Marc Jablon. Therefore, Heatons disputed testimony is not a sufficient basis to grant K. Jablons judgment as a matter of law. See Reeves, 530 U.S. at 151 (in ruling on a Rule 50 motion, a court should disregard all evidence favorable to the moving party that the jury is not required to believe). The jurys verdict against K. Jablon is not based merely on legally sufficient evidenceit is consistent with the overwhelming weight of the evidence showing that his actions in furtherance of the fraudulent scheme to sell CyberKey stock based on a fictitious DHS purchase order were knowing or done with severe recklessness. Therefore, K. Jablons motion for judgment, as a matter of law, and for a new trial should be denied. C. The Evidence Presented Warranted Instructing The Jury On Deliberate Ignorance

Although K. Jablon argues the Court erred when it instructed the jury on deliberate ignorance, he has provided no explanation of why he believes this instruction was not warranted or any legal precedent supporting his assertion. K. Jablons failure to fully develop his argument should preclude its consideration by the Court. See Mahaffey v. Ramos, 588 F.3d 1142, 1146 (7th Cir. 2009) (undeveloped and unsupported arguments need not be considered); United States v. Amerson, 185 F.3d 676, 689 (7th Cir. 1999) (not the role of

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this Court to research and construct legal arguments open to the parties); Swanigan v. Trotter, 645 F. Supp.2d 656, 681(N.D. Ill. 2009); Garcia v. Reed, 227 F. Supp.2d 1183, 1190 (D.N.M. 2002). To the extent the Court does consider the legal memorandum filed by Defendants Big Apple, MJMM, and Marc Jablon in resolving K. Jablons claim, the Commission relies upon the law and argument contained in its Memorandum in Opposition to Defendants Big Apple Consulting USA, Inc., MJMM Investments LLC, and Marc Jablons Motion for Judgment as a Matter of Law Pursuant to Fed. R. Civ. P. 50(a). CONCLUSION For the reasons set forth above, the Court should deny Defendant K. Jablons Pro Se Motion for Directed Verdict and Judgment as a Matter of Law and also should deny His Motion for a New Trial.

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February 21, 2012 Of Counsel: Thomas A. Sporkin David R. Herman

Respectfully submitted, s/Jeffery T. Infelise Jeffrey T. Infelise Assistant Chief Litigation Counsel D.C. Bar No. 456998 Lead and Trial Counsel Duane K. Thompson Assistant Chief Litigation Counsel 100 F Street, N.E. Washington, DC 20549-4010 Tel: (202) 551-4904 Fax: (202)772-9362 E-mail: infelisej@sec.gov Attorneys for Plaintiff U.S. Securities and Exchange Commission

CERTIFICATE OF SERVICE I hereby certify that on February 21, 2012, I electronically filed the foregoing with the Clerk of the Court by using the CM/ECF system. I also certify that the foregoing document is being served this day on counsel of record or pro se parties identified on the attached Service List in the manner specified, either via transmission of Notices of electronic filing generated by CM/ECF or in some other authorized manner for those counsel or parties who are not authorized to receive electronically Notices of Electronic filing.

s/Jeffery T. Infelise Jeffery T. Infelise

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SERVICE LIST VIA CM/ECF Carl F. Schoeppl Florida Bar No. 818518 Schoeppl & Burke, P.A. 4651 North Federal Highway Boca Raton, FL 33431-5133 Tel: (561) 394-8301 Fax: (561) 394-3121 E-mail: carl@schoepplburke.com Attorney for Defendants Big Apple Consulting USA, Inc.; MJMM Investments, LLC, and Marc Jablon VIA FIRST CLASS MAIL Matthew Maguire 8645 Spikerush Court Sanford, FL. 32771 Defendant pro se Mark C. Kaley 14924 Gaulberry Run Winter Garden, FL 34787 Defendant pro se Keith Jablon 329 Blue Stone Circle Winter Garden, FL 34787 Defendant pro se

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