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UNITED STATES DISTRICT COURT

SOURTHERN DISTRICT OF FLORIDA

CASE NO. 07-cv-61693 (JAL)

--------------------------------------------------------------------SECURITIES AND EXCHANGE COMMISSION, :

:

PLAINTIFF, :

:

:

v. :

:

:

JOSEPH J. MONTEROSSO and :

LUIS E. VARGAS, :

:DEFENDANTS. :

--------------------------------------------------------------------

REPLY MEMORANDUM IN SUPPORT OF

DEFENDANT JOSEPH J. MONTEROSSOS MOTION TO DISMISS

Defendant Joseph J. Monterosso (Mr. Monterosso), by and through his undersigned

counsel, hereby submits this Reply Memorandum in Support of his Motion to Dismiss Plaintiff

Securities and Exchange Commissions (the Commission) Complaint. In support of the same,

Mr. Monterosso respectfully states the following:

BACKGROUND

The Commission filed its Complaint against Mr. Monterosso and co-defendant Luis E.

Vargas (Mr. Vargas) on or about November 21, 2007. Mr. Monterosso filed his Motion to

Dismiss and supporting Memorandum of Points and Authorities (Supporting Memorandum)

on or about January 11, 2008, for the Commissions failure to state a claim upon which relief can

be granted and for failure to plead fraud the with requisite particularity, pursuant to Rules

Case 0:07-cv-61693-JAL Document 36 Entered on FLSD Docket 02/07/2008 Page 1 of 10

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445 (N.D.N.Y. 2001) to support its position. The Commissions reliance upon Cippola is

misplaced, however, because Cippola addressed the issue of whether the Complaint in question

satisfied the requirements of Rule 8 of the Federal Rules of Civil Procedure. Id. (Accordingly,

the Court finds that the Complaint satisfies Rule 8 and does not impede a timely decision on

qualified immunity.) The Commissions attempt to derive legal support from an irrelevant case

such as Cippola only further illustrates its lack of basis to contest Mr. Monterossos Motion to

Dismiss. As fully discussed in Mr. Monterossos Supporting Memorandum, the Commissions

Complaint lumps Mr. Monterosso and Mr. Vargas together in its allegations of actionable

conduct, and in doing so has failed to meet Rule 9(b)s pleading standard. Simply put, the

Commission should not be able to proceed without meeting such standard.

II. The Commissions Complaint Fails to Allege Claims Upon Which Relief May Be

Granted

A. Mr. Monterossos Alleged Violations of the Anti-Fraud Provisions

In his Supporting Memorandum, Mr. Monterosso alleges that the Commissions

Complaint fails to allege claims upon which relief may be granted, in violation of Rule 12(b)(6).

Supporting Memorandum at 9. In the Commissions Opposition, it asserts that Mr. Monterossos

assertions that the Commissions Complaint should be dismissed pursuant to Rule 12(b)(6) are

without merit and based upon a misreading of the allegations in the complaint and a

misunderstanding of the law. Commissions Opposition at 7. In response to Mr. Monterossos

argument that the Commission has failed to allege that any supposed misstatement was

attributable to Mr. Monterosso at the time of its dissemination, the Commission suggests that the

Bright Line Test Mr. Monterosso discussed in his Supporting Memorandum is somehow

applicable to actions brought by the Commission. Id. at 8. On that same page of the

Commissions Opposition, however, the Commission acknowledges that, in SEC v. Dauplaise,


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2006 U.S. Dist. LEXIS 9589, at *19 (M.D. Fla. Feb. 22, 2006), the court applied the Bright Line

Test in a Commission action. Accordingly, since the Bright Line Test has clearly been applied to

Commission actions, and the Commission has failed to allege conduct that satisfies the Bright

Line Test, the Commission has in turn failed to allege any actionable misrepresentation or

omission by Mr. Monterosso.

In a further misguided attempt to avoid dismissal of its Complaint, the Commissions

Opposition cites SEC v. Converge Global, Inc., 2006 U.S. Dist. LEXIS 17581 (S.D. Fla. March

10, 2006), and argues that this court entered judgment after a jury trial against a consultant who

had drafted and disseminated a false press release without discussing whether the false statement

was attributed to the consultant. Commissions Opposition at 8-9. Mr. Monterosso respectfully

contends that, when an individual drafts and disseminates a false press release, the fact that the

press release is attributed to that individual is so obvious as to not warrant discussion. The

Commission also conveniently fails to mention that the defendant in Converve Global had

significant prior experience in issuing press releases, and understood the accounting issues

relating to revenue recognition. Converge Global, 2006 U.S. Dist. LEXIS 17581, at *6-7. In

this matter, the Commission has not alleged that Mr. Monterosso drafted or disseminated any

false or misleading press releases, annual or quarterly reports, or registration statements. Nor has

it alleged that Mr. Monterosso understood the underlying accounting principles or business

practices necessary to provide assistance to the individual who did draft and/or disseminate those

items. Without those allegations, any reliance on this courts holding in Converge Global by the

Commission is misguided and insufficient to avoid the dismissal of its Complaint.

Similarly, in response to Mr. Monterossos argument that the Commission failed to

adequately allege scienter, the Commission insists that its Complaint demonstrates both


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knowing misconduct and recklessness. Commissions Opposition at 11-12. It then alleges

actions by Mr. Monterosso that based upon its lumping of the defendants its Complaint does

not adequately allege, and concludes with case law that discusses specific conduct by defendants

in a manner that its Complaint does not allege. As Mr. Monterosso noted in his Supporting

Memorandum, where the Commission does not adequately distinguish between the roles of the

defendants, a court cannot evaluate whether the facts give rise to a strong inference of their

individual fraudulent intent, and dismissal is appropriate. Supporting Memorandum at 11-12

(citing SEC v. Parnes, 2001 U.S. Dist. LEXIS 21722, *17 (S.D.N.Y. Dec. 21, 2001)). In sum,

increased specificity in the Commissions Opposition does not cure the fatal lack of specificity in

its Complaint.

B. Mr. Monterossos Alleged Violations of Exchange Act Rules 13b2-1 and 13b2-2

In his Supporting Memorandum, Mr. Monterosso argues that the Commission failed to

adequately allege that Mr. Monterosso has violated Rules 13b2-1 and 13b2-2. Supporting

Memorandum at 16-18. The Commission responded by restating the language from Rule 13b2-1

and then asserting that scienter is not an element of a violation of the Rule. Commissions

Opposition at 17. However, Mr. Monterossos Supporting Memorandum does not allege that

Rule 13b2-1 possesses a scienter requirement. Instead, it argues that the Commission simply

failed to allege facts sufficient to support a claim for a violation of the Rule. The Commission

did not allege that Mr. Monterosso had the ability to falsify any of Globetel Communications

Corps (Globetel) books and records in any manner, and its allegations that Mr. Monterosso

provided false documents to others who did have that ability does not support a claim for a

violation of Rule 13b2-1.


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In response to Mr. Monterossos assertion that the Commission did not adequately plead

a violation of Rule 13b2-2, the Commissions Opposition simply restates the paragraphs of its

Complaint that it alleges supports a violation of Rule 13b2-2. Commissions Opposition at 19.

The Commisions restatement of the paragraphs of its Complaint, however, does not cure the

deficiencies therein. A simple comparison of the Commissions Complaint with the elements of

Rule 13b2-2 demonstrates that the Commission did not adequately plead a violation that Mr.

Monterosso violated Rule 13b2-2. If the Commission seeks to charge an officer or director of

Globetel with a violation of Rule 13b2-2, let the Commission charge an officer or director whose

conduct supports the allegation.

III. The Commissions Complaint Fails to Adequately Plead Aiding and Abetting

In his Supporting Memorandum, Mr. Monterosso alleges that the Commissions

Complaint fails to adequately plead aiding and abetting violations. Supporting Memorandum at

12. In the Commissions Opposition, it does not argue that it was not required to plead the

numerous aiding and abetting allegations with particularity pursuant to Rule 9(b) (since the

underlying conduct that it alleges supports the aiding and abetting violations were part of the

defendants purported fraudulent scheme). It simply restates the general standard for aiding and

abetting liability, and argues that Mr. Monterossos conduct meets that standard. Commissions

Opposition at 13-17. Noticeably absent from the Commissions Opposition or its Complaint

is any discussion about how Mr. Monterosso could knowingly provide substantial assistance to

any of Globetels violations relating to its periodic reports, books and records, or systems of

internal controls, when the Commission does not allege that Mr. Monterosso had any underlying

knowledge to justify the imputation of any knowing activity relating to those same items. See


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SEC v. Lucent Techs, Inc., 2005 U.S. Dist. LEXIS 41713, *23-24 (U.S.D.J. May 19, 2005)

(dismissing Commissions allegations of aiding and abetting issuers violations of Sections

10(b), 13(a), and 13(b)(2)(A), and Rules 12b-20, 13a-13 where Commission failed to allege that

defendant had knowledge of accounting principles regarding revenue recognition or the issuers

policy regarding how and when revenue should be recognized).

The Commissions Opposition continued its gamesmanship in its legal arguments with its

discussion of Mr. Monterossos reliance on SEC v. Cedric Kushner Promotions, Inc., 417 F.

Supp. 2d 326 (S.D.N.Y. 2006). Commissions Opposition at 16. According to the

Commissions Opposition, since Kushner involved the courts ruling on a motion for summary

judgment, the standard it articulated is somehow inapplicable to this matter. Id. As the

Commission is well aware, Mr. Monterossos Motion to Dismiss tests the sufficiency of the

Complaint, and only the Complaint. Since the Commissions Complaint does not even allege

facts that meet the standard articulated in Kushner (ie, that a defendant cannot aid and abet an

issuers violation of Section 13(b)(2)(A) where the defendant was not responsible for the issuers

books and records or for maintaining adequate controls), then the Commission has failed to meet

Rule 12(b)(6)s standard.

As such, the Commission has failed to meet Rule 9(b)s heightened pleading

requirements, and has also failed to state a claim upon which this court can grant it relief. If the

Commission cannot meet these burdens, then Mr. Monterosso should not be burdened to defend

an enforcement action for which the Commission does not have an adequate basis.

WHEREFORE, based upon Mr. Monterossos Motion to Dismiss and Supporting

Memorandum, as well as the arguments herein, Mr. Monterosso respectfully requests that the


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Commissions Complaint in this matter be dismissed, and that Mr. Monterosso be awarded costs

and attorneys fees and such other relief as the court deems just and proper.

Dated: February 7, 2008Miami Beach, Florida

Respectfully Submitted,

/s/ Mark David Hunter_____Mark David Hunter, Esq.

Florida Bar No. 12995

Leser Hunter Taubman & Taubman, PLLC407 Lincoln Road, Suite 500

Miami Beach, Florida 33139(305) 604-5547 (Telephone)

(305) 604-5548 (Facsimile)E-Mail: [email protected]

mailto:[email protected]:[email protected]

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UNITED STATES DISTRICT COURT

SOURTHERN DISTRICT OF FLORIDA

CASE NO. 07-cv-61693 (JAL)

--------------------------------------------------------------------SECURITIES AND EXCHANGE COMMISSION, :

:

PLAINTIFF, :

:

:

v. :

:

:

JOSEPH J. MONTEROSSO and :

LUIS E. VARGAS, :

:DEFENDANTS. :

--------------------------------------------------------------------

ORDER

Upon consideration of Defendant Joseph J. Monterossos Motion to Dismiss, dated

January 11, 2008, and Plaintiff Securities and Exchange Commissions response thereto, IT IS

HEREBY ORDERED, that Defendant Joseph J. Monterossos Motion to Dismiss is GRANTED.

IT IS SO ORDERED.

Judge Joan A. LenardUnited States District Court


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CERTIFICATE OF SERVICE

I hereby certify that, on February 7, 2008, I electronically filed the foregoing

document with the Clerk of the Court using CM/ECF. I also certify that the foregoing Motion to

Dismiss is being served this day on all counsel of record listed below via transmission of Noticesof Electronic Filing generated by CM/ECF or in some other authorized manner for those counsel

who are not authorized to receive Notices of Electronic Filing electronically.

Service List

Brent Mitchell (CM/ECF)

Cheryl J. Scarboro ([email protected])

Jeffrey T. Ingelise (CM/ECF)

Reid A. Muoio ([email protected])

Walter J. Mathews (CM/ECF)

D. Patricia Wallace (CM/ECF)

/s/ Mark David Hunter______________

Mark David Hunter, Esq.

mailto:[email protected]:[email protected]:[email protected]:[email protected]

36 - Mont Reply

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