The SEC Empire Strikes Back After Reinjuring Its Groin On Planet Daspin

1. Daspin, Agostini, and Lux participated in the fraudulent unregistered offerings of the securities of Worldwide Mixed Martial Arts Sports, Inc. ("WMMA") and an affiliate, WMMA Distribution, Inc. ("WMMA Distribution"),1 start-up companies formed to establish an international league of mixed martial arts tournaments that would generate digital content and sell branded products.

2. From December 2010 through approximately June 2012 (the "relevant period"), WMMA and WMMA Distribution raised a total of $2.47 million from seven investors, of which at least $2 million was raised fraudulently. Daspin, who orchestrated the fraud, targeted unemployed professionals whom he lured in with offers of executive-level positions at the Companies. Typically it was only after prospects arrived for a "job interview" that they learned that they would be required to make a substantial investment as a condition of obtaining employment and receiving a salary.

. . .

10. Edward Michael Daspin, age 77, founded and for all practical purposes controlled the Companies. In 1978, Daspin was convicted of bankruptcy fraud for concealing from the bankruptcy trustee assets of a bankrupt company he had controlled; he was sentenced to eighteen months in prison. United States v. Edward Michael Daspin, 77 Crim. 00238 (D.N.J.) and United States v. Michael Daspin, 77 Crim. 0196 (S.D.N.Y.). Daspin resides in Boonton, New Jersey. Daspin has never been registered with the Commission as a broker-dealer or associated with a registered broker-dealer.

11. Luigi Agostini, 38, was a director and the executive chairman of the board of each of the Companies. Agostini resides in Jersey City, New Jersey.

12. Lawrence R. Lux, age 55, was a director and CEO of each of the Companies. Lux was briefly associated with a registered broker-dealer from December 2005 to April 2006, but otherwise has never been associated with a registered broker-dealer or registered with the Commission as a broker-dealer.

[T]he filings show that Daspin currently has a severe medical condition. The Motion analyzes Daspin's condition in light of seven factors that federal courts that have considered this issue have examined when deciding whether to continue indefinitely an action due to a party's medical condition: (1) the medical evidence and judgments; (2) the related evidence of his activities outside the courthouse; (3) the availability of measures to minimize the risks to his health in subjecting him to a hearing; (4) the temporary or permanent character of the physical problem; (5) his ability to participate in his defense; (6) whether the proceeding is likely to worsen his condition; and (7) the magnitude and seriousness of the case, or the degree of harm to the public interest as a result of the delay.

I therefore conclude that there is currently no authority to indefinitely continue this proceeding. This is especially so here, where Mr. Daspin's doctor estimates that it will be at least a year before he can determine whether Mr. Daspin will ever be able to participate in this proceeding. In other words, I lack the authority to indefinitely continue this matter.

Mr. Daspin's case, however, has been stayed for two months. It would be unfair to make him suddenly prepare for the hearing that is currently scheduled to take place on November 2, 2015. Taking account of the two months that Mr. Daspin's case has been stayed and the parties' desire not to hold separate hearings for Mr. Dapsin and Mr. Agostini, I ORDER that the hearing as to Mr. Daspin and Mr. Agostini will begin on January 4, 2016.

The orders regarding Mr. Daspin's medical status reports are MODIFIED. Mr. Daspin's counsel has stated that his next status report will report no change but that Mr. Daspin will consult with a specialist in late September. Mr. Daspin therefore need not file a status report on September 15, 2015, but shall report the results of his next consultation as soon as he is aware of those results, but no later than October 15, 2015. 3 If the Division chooses to retain a medical expert, Mr. Daspin shall submit to an examination by that expert, on reasonable notice by the Division.

A hearing in this matter is currently scheduled to begin on Monday, January 4, 2016. See Edward M. Daspin, Admin. Proc. Rulings Release No. 3183, 2015 SEC LEXIS 4001, at *1 (Sept. 30, 2015). Counsel for Respondent Edward M. Daspin withdrew effective September 28, 2015. Id. at *3 & n.2.

On October 2, 2015, Daspin sent an e-mail to this Office forwarding a request that the

Division of Enforcement sent him asking for certain medical records. Daspin asserts that the Division is harassing him through its e-mail to him. Daspin has evidently not filed the substance of his e-mails with the Office of the Secretary in compliance with Rules of Practice 151 through 153. See 17 C.F.R. §§ 201.151-.153. The same day, the Division e-mailed this Office a courtesy copy of a letter addressed to me. Among other things, the Division asks that I direct Daspin to comply with existing orders concerning disclosure of his medical records. See Edward M. Daspin, Admin. Proc. Rulings Release No. 3041, 2015 SEC LEXIS 3348 (Aug. 14, 2015); Admin. Proc. Rulings Release No. 2939, 2015 SEC LEXIS 2933 (July 17, 2015). Later on October 2, Daspin responded to the Division's letter with yet another e-mail to this Office, and again without evidently filing anything with the Office of the Secretary. Daspin has since sent this Office multiple further e-mails, either sent in a like manner or by copying this Office on his

e-mails with the Division.

A separate October 4, 2015, e-mail, sent purportedly on behalf of Daspin to this Office by "L.C. May," attached motions requesting dismissal of this proceeding or, alternatively, reconsideration of the August 14 scheduling order, a continuance, and my withdrawal from the proceeding.

As a convenience to all participants, parties to administrative proceedings are provided

with and permitted to use this Office's e-mail address. Use of this Office's e-mail address allows parties to serve each other and this Office with courtesy electronic copies of papers they file with the Office of the Secretary. This Office's e-mail address is not intended, however, to serve as a forum for the airing of grievances. Instead, parties should attempt to resolve disputes amongst themselves before raising disputes with me. And in raising a dispute with me, the parties must follow the Commission's rules that require papers to be filed with the Office of the Secretary. See 17 C.F.R. §§ 201.151-.153. Doing so ensures that everything that takes place during the course of a proceeding is preserved for the public record.

I therefore ORDER Daspin to CEASE sending this Office e-mails unless he is doing so in

response to a direct inquiry or request from this Office or is merely providing courtesy copies of documents properly filed with the Office of the Secretary, consistent with the Rules of Practice. He may also send this Office e-mails if he is genuinely seeking to clarify orders I have issued. Future attempts by e-mail to argue about or contest orders will not be considered.

Given Daspin's pro se status, I will consider his October 2 e-mails, together with the

Division's responsive letter. Daspin may file a combined reply to the Division's letter and response to its request for medical records within five business days after service of the Division's letter. See 17 C.F.R. § 201.154(b). Alternatively, he may simply supply the records the Division asserts he has omitted. . .

SIDE BAR: Progress, a lot making not, is the SEC! Yeah, I know, that comes off as a bit of Yoda-speak but, hey, may the Force be with you. In any event, added to the issue of Daspin's medical condition, we now see that he is proceeding pro se -- ever a complicating factor for adversaries and adjudicators -- and, on top of that, Daspin has a penchant for communicating with the ALJ via email. The ALJ has made it clear: Do or do not, there is no try! Emails sending stop!.

Respondent shall pay disgorgement of $36,853.21 which represents profits gained as a result of the conduct described herein, and prejudgment interest of $4,061.05, but that payment of such amount is waived based upon Respondent's sworn representations in his Statement of Financial Condition dated August 17, 2015 and other documents submitted to the Commission. Also based upon Respondent's sworn representations in his Statement of Financial Condition dated August 17, 2015 and other documents submitted to the Commission, the Commission is not imposing a penalty against Respondent.

SIDE BAR: To see copies of the emails cited in the December 14th ALJ Order, read this Supplement

Respondent Edward M. Daspin a/k/a "Edward (Ed) Michael" founded several mixed martial arts companies and sold stock in them to a number of investors. He did so unlawfully, in unregistered offerings as an unregistered broker. He compounded this activity by deceiving investors with numerous lies and omissions about core aspects of the companies, which later failed. He also deceived them with schemes to hide his control and enable his fraud. And for many months, he attempted to derail this proceeding and evade responsibility. Because of Daspin's failure to appear at two scheduled hearings, I found him in default and deemed true as to him the allegations of the order instituting proceedings (OIP). In this initial decision, I impose on Daspin industry and penny stock bars and a cease-and-desist order. I further order him to pay disgorgement of $1,948,258.47, plus prejudgment interest, and civil penalties of $915,000.

I have considered the parties' properly filed submissions and reconsidered the record. The short of this case is that Daspin failed to appear at the merits hearing and then failed to appear at a hearing held solely to allow him to show why he missed the merits hearing. Daspin also prevented a witness -- his wife -- from testifying at the second hearing. A default order followed Daspin's failure to attend both hearings. I deemed true the facts alleged against Daspin and imposed sanctions.

In a series of post-remand filings, Daspin has raised a host of factual and legal arguments. A fair number of his factual assertions lack any evidentiary support. And his legal arguments proceed as if he legitimately missed two hearings and is the innocent victim of a vast conspiracy. None of Daspin's arguments have merit. For the reasons discussed below, I revise portions of two orders and otherwise ratify all actions I have taken in this proceeding and nearly all actions taken by my predecessor.

By e-mail sent on October 1, 2015, Daspin submitted a declaration signed by Dr. Puzino (Second Puzino Decl.), in support of motions to continue or dismiss, which, given its content and style, was also written by Daspin. The declaration asserted that I:

put[ ] Mr. Daspin in the incomprehensible position that regardless of his medical circumstances he must either default or die trying to save his reputation. The man cannot defend himself and the dissolution of the protections puts our legal system at risk, as unless something is done to restore the postponement Mr. Daspin will be facing a death penalty, for a crime that he advises he did not commit.27

In support of its opposition to Daspin's motions, the Division submitted a letter from Dr. Stanley J. Schneller, M.D., a professor of cardiology at Columbia University since 1985. 28 Dr. Schneller refuted Dr. Puzino's assertions about Daspin's health and asserted that Daspin's then-recent REDACTED test showed "no evidence that Mr. Daspin is at risk of a REDACTED  or other adverse outcome from stress." 29 Dr. Schneller further stated that there was no evidence Daspin REDACTED during his deposition and characterized Dr. Puzino's opinions as "without medical foundation," "medically unfounded," and "inconsistent with Dr. Puzino's failure to take medial steps to diagnose and treat Mr. Daspin's condition." 30 Indeed, he was struck by the contrast between Dr. Puzino's dire warning about Daspin's health and "the leisurely pace with which he has addressed" Daspin's alleged problem, given that patients win Daspin's supposed circumstance would normally be seen within days. 31 He also stated that Dr. Puzino misleadingly omitted certain test results, "misrepresented the key finding" of Daspin's REDACTED  test, and misinterpreted another test. 32 In conclusion, Dr. Schneller opined that there is no reason Daspin could not participate in this proceeding. 33

Consistent with the order I issued on January 8, the Division attempted to schedule Daspin's interview with its expert. Because Daspin did not cooperate, the Division scheduled the interview and notified Daspin of the time and place.69 Instead of appearing for the interview, Daspin sent an e-mail saying that he was ill and confined to his home.70

During the evening of February 10, 2016, Daspin sent an e-mail informing my office and the Division that he had taken affirmative steps to prevent his wife from testifying at the next day's hearing.71 And in fact, neither Daspin nor his wife appeared.72

Because Daspin failed to appear, the Division's evidence about the reason for his absence from the January hearing was unrebutted. That evidence, including the report and testimony of Dr. Harold J. Bursztajn, M.D., who has practiced clinical and forensic neuropsychiatry since 1982, demonstrated that Daspin concocted his alleged REDACTED.73 In short, Dr. Bursztajn explained that Daspin staged his REDACTED to manipulate this proceeding to obtain a narcissistic benefit. 74 Dr. Bursztajn also opined that Daspin engages in a "pattern of grandiosity" that involves humiliating others and portraying himself as a hero.75

This brings us to Daspin's alleged medical evidence and his claim that REDACTED caused his REDACTED and his absence from the January hearing. In his declaration in support of his motion for a restraining order, Daspin says that he presented "incontrovertible evidence . . . that it was the side effects" of the medicine Dr. Puzino gave him that caused his REDACTED.145 There are a number of problems with this assertion.

For starters, Daspin's history of concocting false medical excuses, together with his penchant for inventing facts, would give anyone pause. That is particularly the case with Dr. Puzino's declarations, the last five of which Daspin prepared. Daspin repeatedly used the declarations to present argument and criticism of my decisions. The invective and legal observations contained in Dr. Puzino's declarations raise doubts about their reliability or usefulness. 146

Moreover, Dr. Puzino's conclusion that REDACTED caused Daspin's REDACTED is contrary to objective evidence. Although Dr. Puzino says that he gave Daspin REDACTED samples in mid-December 2015, Daspin's contemporaneous medical records contain no mention of REDACTED before January 24, 2016. 147. As Dr. Bursztajn explained, either Dr. Puzino failed to document dispensing REDACTED and the advice he gave Daspin, thereby behaving "in an extraordinary haphazard manner . . . well below the standard of care," or there are serious reasons to think that Dr. Puzino's declarations are inaccurate. 148

SIDE BAR: For Details on Lucia v. SEC, READ: "BREAKING NEWS: Lucia V. SEC / Supreme Court Finds SEC ALJs Unconstitutional (BrokeAndBroker.com Blog / June 21, 2018)
http://www.brokeandbroker.com/3941/lucia-sec-supreme-court/ If it would help you coneptualize what's going on with Lucia, think of it as the SEC having frozen Daspin in carbonite and thinking he's now their prisoner -- only to learn that the Supreme Court ordered him released from the horrific bondage. 

a twelve-page filing on April 8, 2019, titled "Final contempt response" that mainly asserts facts but, in addition, asks for directions to the courthouse, requests that the hearing begin at 10:30 a.m. because of traffic, and states that Daspin will rely on the Division for witnesses and copies of exhibits.

With respect to Daspin's first request, there are many online sites that will provide door-to-door directions for getting to the Javits Federal Building using a range of transportation options, including cars and public transportation.

he asked me to provide him with a redacted copy of my notes from the hearing as a substitute for a copy of the hearing transcript. Construing the email as a motion, Daspin's request is DENIED. I cannot provide one party my informal perspective on events.

In prior rulings I have indicated what is necessary to receive a free hearing transcript. . .

Daspin is charged with willfully violating (1) Securities Act Section 17(a), Exchange Act Sections 10(b) and 20(b), and Rule 10b-5, 15 U.S.C. §§ 77q(a), 78j(b), 78t(b); 17 C.F.R. § 240.10b-5, as a result of his fraudulent conduct related to the securities offerings of Worldwide Mixed Martial Arts Sports, Inc. (WMMA), and WMMA Distribution, Inc.; (2) Securities Act Section 5(a) and (c), 15 U.S.C. § 77e(a), (c), by selling or offering to sell nonexempt unregistered securities; and (3) Exchange Act Section 15(a), 15 U.S.C. § 78o(a), by acting as an unregistered broker. OIP at 2-3, 14; Div. Br. 78-103. 

"Very" applies to all aspects of Edward Michael Daspin. He is smart, engaging, aggressive, persuasive, excitable, at times charming, and prone to swearing and yelling. E.g., Div. Ex. 577; Tr. 1823-25, 2673-74, 3399; cf. Tr. 774-75 (allegation by the Division that after a witness testified at the hearing, Daspin called the witness an "[expletive] liar, and one of these days I'm going to get you," which Daspin denied saying). Daspin considers himself a strategic planner, a visionary, a deal maker with a career of putting pieces together to organize companies; by his own account he has bought 350 companies and been sued many times but never lost. Tr. 2673-74, 2814, 2875, 3016, 3124-25, 3129. In 1978, Daspin was jailed for six months for a felony bankruptcy fraud conviction. Ans. at 8; Tr. 1878, 2814; see generally United States v. Daspin, No. 77-cr-238 (D.N.J.); United States v. Daspin, 77- cr-196 (S.D.N.Y.) He says that mistake has caused him forty years of pain and believes that federal prisoners who have served their sentences should be pardoned. Tr. 2814-15, 3019. 

In 2010, Daspin came up with the idea of creating an international league of mixed martial arts (MMA) tournaments where winners of local and area fights would compete against one another and move up in brackets leading to national and international championship matches. Tr. 68-70. MMA "is a full-contact combat sport that allows a wide variety of fighting techniques (such as Greco-Roman Wrestling, Kickboxing, Boxing, Karate, Jujitsu, etc.) to be used in a bout." Div. Ex. 1 at 7. At the time, there was one large mixed martial arts organization in the United States, but Daspin's innovative idea-which he initially developed with Luigi Agostini, a close friend of Daspin's son, and people he had worked with in other businesses- was for an international operation. Tr. 3021, 3050-51, 3070-71, 3096-98, 3260-64. He envisioned letting local promoters keep the live gate proceeds, and the WMMA companies would build a worldwide tournament and sell the programing. Tr. 2884-85. Daspin envisioned the creation of national leagues in the United States and fifteen other countries, each managed by sixteen subsidiaries and broken into regions. Div. Ex. 3 at 7; Div. Ex. 450; Tr. 720, 999-1003, 2884-85. The plan was to generate substantial revenues from payper-view sales, closed-circuit-television permits, delayed-broadcast television sales, and the like. Div. Ex. 3 at 7. Four country companies were to be operating by 2012. Div. Ex. 1 at 9. The companies would split the revenue from ticket sales with local and regional MMA promoters, who control the individual fighters, because their cooperation was crucial. Tr. 71-73. 

Daspin designed and put in place a convoluted (to put it mildly) legal structure involving a number of entities that he controlled. He initially funded the operation with a loan from his wife. Div. Ex. 147; Tr. 3298, 3302- 06. The central structure consisted of three companies. WMMA, incorporated in April 2010, was the principal operating company that would create the international MMA league that Daspin envisioned. OIP at 4; Ans. at 8. WMMA Distribution, a Nevada corporation formerly known as American Graphics Communications and Distribution Services, was created to distribute WMMA-branded content. 3 Ans. at 8. From an operations perspective, there was no functional difference between the two companies; the same people worked on the same projects. Tr. 2238-39. 

The overwhelming evidence is that Daspin controlled all the events and knowingly performed or directed all the activities at issue. Tr. 126, 165-66, 193-94, 833, 841, 848, 1096, 1807, 2203, 2297, 2351-52. Daspin was therefore knowingly responsible for the deceptive and manipulative conduct described in the factual findings and reiterated below. 

Daspin's defense that the WMMA companies' boards approved most of the activities is invalid because he controlled the board. Daspin made Agostini board chairman; there is nothing in the record that shows Agostini was qualified to lead a startup, and all of the evidence from persons who were on the scene is that he simply transmitted direction and orders from Daspin. See Tr. 126, 822, 833-34, 841. Daspin gave Agostini and Mrs. Daspin exclusive authorization to sign checks and control the companies' financial records. Tr. 127, 136-38, 185, 321, 848, 1657, 1669, 1675-76, 1722; Div. Exs. 200, 201, 207, 207A. The other two board members, Lux and Main, signed whatever Daspin wanted them to sign without discussion. See, e.g., Tr. 235, 823-24, 827-50, 888-90, 916-20, 969. Lux signed things he did not understand or agree with because he needed the salary. Tr. 100, 701. Main was a chiropractor by profession with no experience in running a media business. 

The overwhelming evidence is that Daspin engaged in a scheme to find people with means and convincing them to buy securities by concealing critical information about the nature of the companies whose securities he was offering and selling. Tr. 290-92, 315, 638, 1265, 1269, 1271, 1562. Given the method of solicitation-placing advertisements on job websites catering to persons qualified to be high-paid executives-potential investors thought that they were interviewing with Daspin for a high-paying position. E.g., Tr. 58, 1583-84, 2218-20, 2707. Persons responding to the solicitation did not know that this was a bait-and-switch scheme. It was only at the in-person interview when most of them learned from Daspin that it was necessary to make an investment of $250,000 or more to be hired. E.g., Tr. 2229-35, 2245- 46. But see Tr. 2366, 2372 (Burnham mentioned to Heisterkamp "that there may be an opportunity to have equity in the company" during a phone conversation). The results of Daspin's conduct demonstrates that convincing individuals to invest as much as possible-as opposed to hiring management personnel suitable to the companies' needs-was his primary goal. As he told Lux, "[w]e're selling jobs here." Tr. 284-85. Among tactics he employed, Daspin encouraged potential investors to make large investments, using retirement accounts if necessary, to obtain more senior titles rather than evaluating their experience and credentials to make placement decisions. E.g., Tr. 731, 769, 1594, 1597-98, 2373. In addition, he hired Sullivan, Puccio, and Bederjikian even though their positions were redundant. Tr. 337-40, 1039-40. And when Diamond refused to invest, Daspin became aggressive and angry. Tr. 2677-81, 2683-88, 3228-32; Div. Ex. 631. 

Daspin's actions committed with scienter were repeated and frequent in that he directed a fraudulent activity that involved hundreds of interviews and the circulation of numerous PPMs containing material misrepresentations and omissions over two years. Tr. 1264-66, 1268-69, 1287-90, 1317, 3394-95. 

Daspin does not admit wrongdoing or make any assurance that he will not violate the securities laws in the future. At the hearing and in posthearing filings, he has been defiant: "You're never going to collect a dime from me. No matter what, you won't get a penny because I did nothing wrong." Tr. 3414. Instead he asserts that the Division is "here to kill people." Id. And he blames a "conspiracy" between the Division and most of the other witnesses. Daspin Br. 1, 8. 

The risk of future violations is high. Daspin has almost dangerous powers of persuasion. See, e.g., Tr. 2665. And there is a strong likelihood that he would continue to operate in the securities field if given the opportunity. He has stated "if I have enough energy and if I get paid a portion of what I lost, I would restart that company because I have the original promoters, and now I saw what the mistakes were." Tr. 3102-03. 

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