SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. WILSON J. RONDINI, III, FALCON CAPITAL LLP, and FALCON CAPITAL PARTNERS LIMITED, Defendants Case No. 23-cv-81285-MIDDLEBROOKS/MATTHEWMAN United States District Court, S.D. Florida Entered on FLSD Docket March 18, 2024 Matthewman, William, United States Magistrate Judge ORDER GRANTING PLAINTIFF U.S. SECURITIES AND EXCHANGE COMMISSION'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS [DE 25] *1 THIS CAUSE is before the Court upon the following: (1) Plaintiff U.S. Securities and Exchange Commission's (“SEC”) Motion to Compel Production of Documents (“Motion to Compel”) [DE 25]; (2) Defendants Wilson J. Rondini, III, Falcon Capital, LLP, and Falcon Capital Partners Limited's (“Defendants”) Opposition to Plaintiff's Motion to Compel Production of Documents [DE 30]; and (3) the SEC's Reply Brief [DE 31]. The Motion to Compel was referred to the Undersigned by the Honorable Donald M. Middlebrooks, United States District Judge. [DE 26]. The Motion to Compel is fully briefed and ripe for review. I. BACKGROUND On December 8, 2023, the SEC filed an Amended Complaint [DE 16] against Defendants, alleging that “[f]rom at least 2018 through the end of 2022, Defendants ... acted as brokers and dealers, engaged in the business of both effecting transactions in securities for the accounts of others and buying and selling securities for their own accounts.” [DE 16 at 1]. The SEC alleged that, “[d]uring that time, Defendants raised tens of millions of dollars on behalf of over a dozen companies that issued stock ... and bought and sold millions of dollars’ worth of securities for their own accounts,” but that “at no time during the relevant period did [Defendants] ... register as a broker-dealer with the [SEC] or associate with a broker-dealer registered with the [SEC].” Id. Accordingly, in the Amended Complaint, the SEC has alleged three Counts— violation of Section 15(a)(1) of the Exchange Act against Defendants, for failure to register as a broker (“Count I”); violation of Section 15(a)(1) of the Exchange Act against Defendants, for failure to register as a dealer (“Count II”); and violation of Section 20(a) of the Exchange Act against Defendant Wilson J. Rondini, III, as the controlling person responsible for the violations of Section 15(a)(1) of the Exchange Act (“Count III”). II. MOTION, RESPONSE, AND REPLY A. The SEC's Motion to Compel [DE 25] Within the SEC's Motion to Compel, the SEC first recites the factual predicate of this case. See DE 25 at 2. That is, the SEC notes that this case involves the SEC suing Defendants “for acting as unregistered brokers and unregistered dealers in violation of Section 15(a) of the Securities Exchange Act of 1934.” Id. In this regard, the SEC states that, for broker liability, “the elements [for liability] include the extent to which Defendants (i) actively solicited investors, and (ii) advised investors about the merits of an investment.” Id. (citing SEC v. U.S. Pension Tr. Corp., No. 07-22570, 2010 WL 3894082, at *20–21 (S.D. Fla. Sept. 30, 2010)). And for dealer liability, “the elements include the extent to which Defendants (i) bought and sold securities for their own accounts, and (ii) engaged in this activity as part of a regular business. Id. (citing SEC v. Almagarby, No. 21-13755, 2024 WL 618517, at *4 (11th Cir. Feb. 14, 2024)). Thus, according to the SEC, “the substance and volume of the Defendants’ conduct in communicating with prospective investors is not just relevant evidence, it is critical to the proof required to establish the Defendants’ liability.” Id. *2 That being said, the SEC notes that “[d]uring the five years preceding the filing of the SEC's complaint—July 2018 through at least September 2023—Defendants raised money for approximately twenty different corporate issuer clients.” Id. at 3. The SEC maintains that “Defendants raised money for these corporate issuer clients by effecting transactions in securities for the accounts of others – specifically investors whom the Defendants solicited for offers to purchase these securities.” Id. Moreover, “[a]t the same time Defendants were acting as brokers selling their corporate issuer client offerings, they were also offering and selling securities of these same issuer clients for their own accounts.” Id. at 4. According to the SEC, Defendants called these dealings “Private Transactions,” wherein “they bought shares from corporate issuer client insiders or early shareholders and then marketed and sold those shares at ... marked-up prices to the Falcon investor following.” Id. With respect to these “Private Transactions,” the SEC argues that one of the principal ways of showing dealer liability is to show the volume and regularity of such. Id. at 4–5. Turning to the requested documents originally at issue in the Motion to Compel—RFP No. 7 (Defendants’ communications to prospective investors concerning corporate client issuer offerings); RFP No. 9 (contact lists and/or distribution lists of potential investors who were sent communications about offerings); and RFP No. 17 (Defendants’ communications concerning the Private Transactions for their own accounts), the SEC first notes that all three categories of documents are solely in the Defendants’ possession, and that the Defendants’ privilege objections in response to the requested “should be rejected because the Defendants failed to provide any further information or privilege log as required by the Local Rules.” Id. at 6. Further, to the extent Defendants object to discovery pertaining to broker related conduct as being disproportional to the needs of the case because Defendants “admitted certain facts concerning liability,” the SEC notes that Defendants’ “attempt at legal double-speak is not an adequate substitute for the facts.” Id. at 7. Indeed, “[a]fter the [SEC] establishes liability, there will be a remedies phase in which the SEC will seek a civil penalty,” with that penalty being based on factors including the egregiousness of the violations, and the isolated or recurrent nature of the misconduct. Id. With respect to RFP No. 17 in particular,[1] the SEC notes that Defendants objected to the request “in terms of time.” Id. at 9. While the SEC accepted Defendants’ time limitation to documents produced after October 1, 2020, Defendants “also limited the scope of communications to only investors listed in the SEC's initial disclosures, which is 17 people.” Id. According to the SEC: There are two problems with this limitation. First, as noted above, Rondini sent email solicitations to himself, from himself and blind copied prospective investors. By limiting their search to only communications with 17 people, the Defendants have excluded all Private Transaction solicitation emails that Rondini sent, as a matter of course, to himself. Second, as noted in the facts, the Order Runs from Job.com and TuneGo show that from October 1, 2020, Defendants conducted 17 different Private Transaction offerings, selling $14.5 million worth of shares to hundreds of investors. Some of these offerings did not include the 17 investors in the SEC's initial disclosures. By limiting their response to this artificial number of investors, the Defendants are withholding substantially all the emails they sent soliciting Private Transactions from prospective investors. Id. In any event, the SEC notes that “[i]n the meet and confer process, the [SEC] proposed an email search string limited to identifiers for (i) Private Transactions and (ii) Job.com or TuneGO,” and that a few days prior to the Motion to Compel being filed, the SEC “proposed a further narrowing of the search to identifiers for Private Transactions and Job.com.” Id. at 10. However, Defendants did not respond and “failed to provide any detailed response why producing th[e] narrowed set of documents would be disproportionate or burdensome.” Id. at 10. B. Defendants’ Response [DE 30] *3 Defendants begin by noting that “[t]he discovery sought and produced in this matter has been tremendous and extremely expensive for an inquiry directed primarily at an individual, Mr. Rondini.” [DE 30 at 2]. Indeed, “Defendants have already had to incur significant costs associated with the review of more than 20,000 internal documents, where outside counsel and vendors have spent more than 450 hours performing tasks related to e-discovery services – and they have incurred more than $230,000 in legal fees and expenses associated with e-discovery services.” Id. Accordingly, Defendants argue that “there is a clear imbalance of resources where the SEC possesses the virtually unlimited resources of the federal government compared to an individual (regardless of wealth).” Id. at 3. Although Defendants note that it is true that the documents sought are within their possession, “the documents sought are emails such as those Defendants have already produced or that the SEC has already received from other participants in the communications during either its pre-suit investigation or discovery in this matter.” Id. Moreover, “there is no amount in controversy” in this case, as the SEC's Amended Complaint “does not even allege that there were any victims from Defendants’ purported failures to register.” Id. Turning then to RFP No. 17 in particular, Defendants maintain that the SEC's revised February 24, 2024 search string proposal remains disproportionate to the needs of the case. Id. at 4–5. As stated by Defendants: These searches – once de-duplicated and eliminating documents previously produced by Defendants – yields 5,198 documents including “families.” The estimated time to review those documents would be more than 100 hours, which translates to a cost exceeding $40,000. See Ex. 1. In light of the needs of the case, and viewed with documents already produced, it is clearly disproportionate. In any event, the SEC's claim that it requires these documents is incorrect. Defendants have already produced to the SEC Order Runs – that is, the summary evidence – that delineate the transactions involving Defendants. Further, Defendants also produced numerous communications on this subject, including some marked as exhibits at Mr. Rondini's deposition and were subjects of questioning. Thus, communications or further inquiry that simply addresses the communications that underpin those transactions are unnecessary. Id. at 5. C. The SEC'S Reply [DE 31] The SEC first states the parties have been unable to resolve their dispute pertaining to RFP No. 17. [DE 31 at 1]. In this regard, the SEC maintains that the Court should require Defendants to produce documents responsive to their February 24, 2024 narrowed request because of: “(i) their importance to the issue[ ] of dealer liability in this case, (ii) the SEC's good faith efforts to reduce the scope of documents to be produced, (iii) the Defendants[’] continued unwillingness to share meaningful data, and (iv) the Defendants[’] inability to suggest a further means of narrowing or other compromise that would provide the equivalent proof shown by these probative documents.” Id. at 2. First, with respect to the importance of the documents, the SEC notes that Defendants will be liable for acting as unregistered dealers if the SEC can show Defendants generated profits through “stock-flipping,” or, in other words, “acquiring stock for the purpose of immediate resale for marked-up profits.” Id. at 2. To this end, the SEC argues that “[t]here is no dispute the Defendants conducted their private transactions by email communications with their counterparties” and that, “[b]y refusing to produce these communications, Defendants are withholding proof of their liability.” Id. Second, as to the narrowing in scope of the request, the SEC argues that its limited request involves “transactions for which the SEC has not yet been able to sufficiently document the pricing and timing of the Defendants’ stock flipping activities.” Id. at 3. Third, as to the unwillingness to share the meaningful data, the SEC argues that Defendants “continue to inflate their numbers and exaggerate their costs,” as the document “families” with which Defendants take issue include a number of attachments which do not merit the time or expense of review. Id. at 3. Moreover, Defendants “have waived their privilege objections so it is hard to understand what level of review would need to be done to produce these obviously relevant documents.” Id. at 3. And finally, the SEC notes that Defendants “have not offered any compromise solution that would substitute for the evidence they possess.” Id. *4 Accordingly, simply stated, the SEC argues that the Court should order Defendants “to produce the documents sought by Request No. 17 and narrowed by the [SEC's] last proposed set of search terms sent on February 24, 2024 – (‘private transaction’ OR ‘PT’) AND (‘job.com’ OR ‘My Job Matcher’).” Id. III. ANALYSIS AND RULINGS Rule 26(b)(1) of the Federal Rules of Civil Procedure defines the scope of discovery as “any non-privileged matter that is relevant to any party's claim or defense and proportional to the needs of the case,” considering the importance of the issues at stake, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery, and whether the burden of the discovery outweighs the likely benefit. Fed. R. Civ. P. 26(b)(1). “It is well established that the courts must employ a liberal standard in keeping with the purpose of the discovery rules.” Davis v. Nationwide Ins. Co. of Am., No. 19-cv-80606, 2020 WL 7480819, at *3 (S.D. Fla. Dec. 18, 2020). To this end, “the burden of showing that the requested discovery is not relevant to the issues in the case is on the party resisting discovery.” Dunkin’ Donuts, Inc. v. Mary's Donuts, Inc., No. 01-0392-CIV, 2001 WL 34079319, at *2 (S.D. Fla. Nov. 1, 2001). However, Rule 26(b) allows discovery “through increased reliance on the commonsense concept of proportionality.” In re: Takata Airbag Prod. Liab. Litig., 15–2599–MD, 2016 WL 1460143, at *2 (S.D. Fla. Mar. 1, 2016) (quoting Chief Justice John Roberts, 2075 Year–End Report on the Federal Judiciary 6 (2015)); Reuter v. Physicians Cas. Risk Retention Grp., No. 16-80581-CV, 2017 WL 395242, at *2 (S.D. Fla. Jan. 27, 2017). “Proportionality requires counsel and the court to consider whether relevant information is discoverable in view of the needs of the case.” Office Depot, Inc. v. Elementum Ltd., No. 19-CV-81305, 2020 WL 5506445, at *3 (S.D. Fla. Sept. 14, 2020) (citing Tiger v. Dynamic Sports Nutrition, LLC, Case No. 15-cv-1701, 2016 WL 1408098, at *2 (M.D. Fla. Apr. 11, 2016)). The Court has carefully considered the SEC's Motion to Compel [DE 25], Defendants’ Response [DE 30], the SEC's Reply [DE 31], the discovery requests and responses, and the entire docket in this case. After careful consideration, the Court rules as follows: The sole disputed RFP—RFP No. 17—and the response thereto, state in their entirety: REQUEST NO. 17: All communications concerning the Private Dealing Transactions identified in response to Interrogatory No. 8, including but not limited to communications with the counterparties to the Private Dealing Transactions and communications with the issuers whose securities were being bought or sold. RESPONSE TO REQUEST NO. 17: Defendants object to this Request on the grounds that it seeks “all communications” for a disproportional ten-year time period and regardless of whether the documents or communications relate to the claims and allegations in the Amended Complaint, and therefore purports to require the production of documents that are neither relevant to the subject matter of this action nor proportional to the needs of the case. Defendants further object to this Request on the grounds that the phrase “Private Dealing Transaction” is vague and undefined, and therefore purports to require the production of documents that are neither relevant to the subject matter of this action nor proportional to the needs of the case. Defendants further object to this Request on the grounds that it is neither relevant to the subject matter of this action nor proportional to the needs of the case because Defendants intend to attempt to stipulate to certain facts as to liability under Count I of the Amended Complaint as set forth above in the Introductory Statement. Defendants object to this Request on the grounds that it seeks documents and information which may be protected by the attorney-client privilege, the work product doctrine, and/or other applicable privilege, protection, exemption, or immunity. *5 Subject to and without waiving the foregoing objections, Defendants have produced relevant, non-privileged communications with those persons listed in Item No. 28 of Exhibit A of the SEC's initial disclosures served on November 3, 2023, with whom Defendants and/or Falcon Capital UK entered into the agreements produced in response to Request No. 16, regarding the transactions identified in Mr. Rondini's response to Interrogatory No. 8 served contemporaneously herewith, during the time period of October 1, 2020, through September 18, 2023, the filing of this lawsuit, that are in Defendants’ possession, custody, or control and can be located after a reasonable, good-faith search. These documents can be found throughout DEF0001344 - DEF0025831 and DEF0029397 - DEF0032164. [DE 25-7 at 17–18]. First, as represented by the SEC in its Motion to Compel [DE 25], Defendants objected to the temporal scope of RFP No. 17 and “refused to produce document[s] earlier than October 1, 2020 (which is the start of the period when Rondini spends more time in the United States than abroad).” [DE 24 at 9]. On this matter, the SEC stated that it “accepted this time limitation.” Id. Defendants have not disputed this assertion in their Response or indicated otherwise. See DE 30. Accordingly, the Court finds that Defendants’ objection as to the temporal scope of RFP No. 17 is OVERRULED. Second, to the extent Defendants object to RFP No. 17 on the basis that the request seeks documents that are neither relevant nor proportional to the needs of the case, the Court rejects this assertion. This is a case involving the purported failure of Defendants to register as dealers of brokers. Thus, the Private Transactions (or, instances in which “Defendants were acting as brokers selling their own corporate issuer client offerings, [and] were also offering and selling securities of these same issuer clients for their own accounts),[2] are necessarily relevant and proportional to the needs of the case.[3] Indeed, as noted by the SEC, dealer liability includes the extent to which Defendants bought and sold securities for their own accounts and the extent to which Defendants engaged in such activity as part of a regular business. Id. at 4–5 (citing Alamagarby, 2024 WL 618517, at *4). Thus, the production of communications pertaining to “Private Transactions” seems patently appropriate.[4] Defendants’ simple assertion that RFP No. 17 is “clearly disproportionate” in light of the needs of the case and viewed in terms of the documents already produced, and its assertion that the SEC does not need the documents, is unpersuasive. See Rossbach v. Rundle, 128 F. Supp. 2d 1348, 1354 (S.D. Fla. 2000) (“The onus is on the party resisting discovery to demonstrate specifically how the objected-to request is unreasonable or otherwise unduly burdensome.”). In fact, the SEC has asserted that its request is now “limited to transactions for which the SEC has not yet been able to sufficiently document the pricing and timing of the Defendants’ stock flipping activities.” DE 31 at 3]. Moreover, Defendants’ reliance on reference to the burdensomeness of producing 5,198 documents non-duplicative documents—including “families”—is also unavailing. The SEC noted in its Motion to Compel [DE 25] that documents produced with “families” are unnecessary, as private transaction communications often include[ ] multiple transaction documents ... which ... do not need careful pre-production scrutiny.” [DE 25 at 10]. Defendants did not dispute this assertion relating to document “families” and nonetheless continue to rely on document “families” in their Response. See DE 30 at 5. Therefore, Defendants’ objection based on relevancy and proportionality is OVERRULED. *6 Lastly, the Court notes that Defendants object to RFP No. 17 “on the grounds that it seeks documents and information which may be protected by the attorney-client privilege, the work product doctrine, and/or other applicable privilege, protection, exemption, or immunity.” However, S.D. Fla. L.R. 26.1(e)(2)(C) “requires preparation of a privilege log with respect to all documents, electronically storied information, things and oral communications withheld on the basis of a claim of privilege or work product protection” absent circumstances not applicable in the instant case. Defendants have not refuted the SEC's assertion that they failed to produce a privilege log in this case. Thus, any objections based on privilege are necessarily OVERRULED. IV. CONCLUSION Based on the foregoing, it is ORDERED AND ADJUDGED as follows: 1. Plaintiff U.S. Securities and Exchange Commission's Motion to Compel Production of Documents [DE 25] is GRANTED, as stated herein. 2. Defendants shall produce documents responsive to RFP No. 17, as narrowed by the SEC's proposed set of search terms sent on February 24, 2024. That is, (“private transaction” OR “PT”) AND (“job.com” OR “My Job Matcher”). Defendants shall produce these documents on or before March 26, 2024. The Court trusts that, given Defendants’ waiver of privilege by failing to produce a privilege log, and considering the existence of a confidentiality order, the parties will cooperate in good faith so that all necessary discovery is produced forthwith in this case. 3. The Court reminds the parties that discovery closes on April 4, 2024. [DE 9]. The parties shall cooperate in good faith to ensure that they comply with this deadline. 4. In light of the parties’ narrowing of the issues related to the Motion to Compel [DE 25], and in light of the SEC's further narrowing of RFP No. 17, the Court finds that an award of expenses would be unjust. Thus, the Court declines to award reasonable expenses, including attorney's fees, pursuant to Rule 37(a)(5)(A)(iii) of the Federal Rules of Civil Procedure. However, should Defendants fail to comply with this Court Order in a prompt manner, the Court will revisit the issue of sanctions against Defendants. DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County, in the Southern District of Florida, this 18th day of March, 2024. Footnotes [1] The parties have limited their dispute solely to RFP No. 17 since the filing of the Motion to Compel. [2] See DE 25 at 4. [3] To the extent Defendants argued that “Private Dealing Transaction” is vague and undefined, the Court notes that the SEC defined “Private Transactions” in the Motion to Compel, and that Defendants had no apparent difficulty in responding to RFP No. 17 in their Response. See DE 30 at 4–5. Defendants’ objection on this point is frivolous. [4] As properly noted by the SEC, while Defendants argue that they “intend to attempt to stipulate as to certain facts as to liability,” Defendants have raised an affirmative defense that Defendants were “foreign finders” and that their actions were permissible under FINRA. See DE 24 at 10.