Case 2:08-cv-00437-LRH-RJJ Document 164 Filed 01/11/11 Page 1 of 19

1 JOHN M. McCOY III, Cal. Bar No. 166244

E-mail: mccoyj@sec.gov
2 KAREN MATTESON, Cal. Bar No. 102103
E-mail: mattesonk@sec.gov
3 MOLLY M. WHITE, Cal. Bar No. 171448
E-mail: whitem@sec.gov
4
Attorneys for Plaintiff
5 Securities and Exchange Commission
Rosalind R. Tyson, Regional Director
6 5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
7 Telephone: (323) 965-3998
Facsimile: (323) 965-3908
8
9 UNITED STATES DISTRICT COURT
10 DISTRICT OF NEVADA
11
12 SECURITIES AND EXCHANGE Case No. 2:08-cv-00437-LRH-RJJ
COMMISSION,
13 Plaintiff,
14 vs.
15 CMKM DIAMONDS, INC., URBAN
CASAVANT, JOHN EDWARDS,
16 GINGER GUTIERREZ, JAMES
KINNEY, ANTHONY TOMASSO,
17 KATHLEEN TOMASSO, 1ST
GLOBAL STOCK TRANSFER LLC,
18 HELEN BAGLEY, NEVWEST
SECURITIES CORPORATION,
19 DARYL ANDERSON, SERGEY
RUMYANTSEV, ANTHONY
20 SANTOS, and BRIAN DVORAK,
21 Defendants.
22
23
REPLY IN FURTHER SUPPORT OF MOTION BY PLAINTIFF
24 SECURITIES AND EXCHANGE COMMISSION FOR SUMMARY
JUDGMENT AGAINST DEFENDANT SERGEY RUMYANTSEV
25
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1 I. INTRODUCTION
2 Defendant Sergey Rumyantsev (“Rumyantsev”) opposes the motion by
3 Plaintiff Securities and Exchange Commission (“Commission”) for summary
4 judgment, arguing that material facts are in dispute and that the Commission is not
5 entitled to relief as a matter of law. First, he argues that he was not a “necessary
6 participant” or a “substantial factor” in the unregistered offering of billions of
7 shares of CMKM stock because: (1) the undisputed facts of this case are not
8 precisely identical to those of prior reported cases where defendants were held to
9 be necessary participants and substantial factors in unregistered offerings; and (2)
10 there are several bad acts he did not perform in connection with the offering.
11 However, Rumyantsev’s assertion that the Commission is not entitled to summary
12 judgment as to his liability fails because he cites to no authority which requires that
13 the Commission prove a particular set of facts to establish that he was a “necessary
14 participant” or “substantial factor,” or that the undisputed facts are, as a matter of
15 law, insufficient for the Commission to establish his liability.
16 Second, Rumyantsev argues that the Commission is not entitled to relief
17 because he claims that the Commission has not established the undisputed
18 existence of each of the factors the Court must consider in determining the
19 likelihood of future violations, and because the Commission’s reasonable
20 approximation of his ill-gotten gains is not precisely consistent with the amount it
21 previously sought in disgorgement from Defendant NevWest, the broker-dealer of
22 which Rumyantsev was a principal, or the amount which another principal of
23 NevWest, Anthony Santos, consented to disgorge in settlement with the
24 Commission. These arguments also fail, however, because the Commission need
25 not establish the existence of each factor in order to satisfy the “totality of the
26 circumstances” test that the Court must apply in determining reasonable likelihood

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1 of future violations and the propriety of injunctive and penalty relief, and because
2 Rumyantsev has not met his burden to demonstrate that the Commission’s
3 approximation of his ill-gotten gains is not reasonable.
4 For the reasons explained below, the undisputed facts entitle the
5 Commission to summary judgment, and Rumyantsev’s arguments to the contrary
6 are unavailing.
7 II. ARGUMENT
8 A. The Undisputed Material Facts Establish That Rumyantsev Was
9 A “Necessary Participant” And A “Substantial Factor” In The
10 Unregistered Offering
11 Rumyantsev does not dispute that there was a massive unregistered offering
12 of CMKM stock; nor does he seek to argue that the stock was exempt from
13 registration. Rather, his sole argument that the Commission is not entitled to
14 summary judgment as to his liability is that he was not a “necessary participant” or
15 a “substantial factor” in the unregistered offering.
16 Rumyantsev fails, however, to controvert that he knew that defendant
17 Edwards sold CMKM stock through more than thirty different NevWest brokerage
18 accounts; and that Rumyantsev exercised control over NevWest, because he was
19 its CEO and head trader, owned nine percent of the company, was one of four
20 NevWest Board members and decision-makers, handled NevWest’s finances, and
21 handled all trading functions including record-keeping, compliance and
22 supervision. (See Statement Of Undisputed Material Facts (“Facts”) [Docket No.
23 161-2] ¶¶ 61, 9-13.) As Rumyantsev himself summarized, CMKM “always
24 appeared questionable” to him, because it tried to pull its Commission registration
25 which would result in there being no public information; it was not filing required
26 periodic reports with the Commission and there was accordingly no current

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1 publicly available information, and a cease-and-desist action had been taken by the
2 Canadian securities regulatory authorities, “a big indication that something’s not
3 right with the company.” (Facts ¶ 86.)1 Contrary to Rumyantsev’s apparent
4 assertion, he was not merely a passive observer of CMKM’s “questionable”
5 activities. Rather, the uncontroverted facts establishing his high-level position and
6 ownership interest in the broker-dealer distributing the stock and knowledge of
7
8 1
Rumyantsev seeks to controvert that (1) one of NevWest’s two primary
9 clearing brokers was Jefferies & Company (Facts ¶ 79); and (2) he never took steps
to investigate why Jefferies stopped trading the flow of CMKM stock from
10 NevWest (Facts ¶ 85.) The Commission based the first Fact on Rumyantsev’s
testimony that “Since we could do only X clearing trades in the amount consistent
11 with Mr. Edwards’ orders, during most of the 2004, the majority of volume went
though Jeffreys & Company in New York and. . . because they were the only two
12 houses we knew that would accept large orders for X clearing processing.”
(Matteson Declaration, Ex. 8 at 97:14-97:20.) Further research does indicate that
13 Rumyantsev’s present statement that Jefferies was a counter-party rather than a
clearing broker for NevWest is correct. However, it is not material.
14
The more important fact – Rumyantsev’s failure to investigate why Jefferies
15 stopped trading the flow of CMKM stock – is uncontroverted. Unfortunately, the
Commission miscited the supporting evidence as being Rumyantsev’s Response to
16 Commission RFA No. 49, which Rumyantsev in fact denied. However, the only
effect of such denial is that the Commission has to prove up the fact at trial or
17 otherwise. See Fed. R. Civ. P. 37(c)(2). Rumyantsev presents no evidence that he
in fact did investigate Jefferies’ reasons for ceasing trading in CMKM. Moreover,
18 Rumyantsev did admit the related fact that he never asked Jefferies why it stopped
trading the flow of CMKM stock. (Facts ¶ 83.) In fact, when asked in testimony
19 “Did you ask Jeffreys why they decided to discontinue that business?” Rumyantsev
responded:
20 No. But if you remember, I mentioned that very few firms for a
variety of reasons would entertain large volume business doing X
21 clearing in low price securities. So it could have been something
related specifically to that matter, it could be something else, but I
22 don’t want to speculate on that.
23 (Supplemental Declaration of Karen Matteson, Ex. 1 (Rumyantsev Testimony at
168:19-169:15.)
24 However, even assuming the Court does not consider the above facts
concerning Jefferies’ role and Rumyantsev’s failure to investigate why Jefferies
25 stopped trading the flow of CMKM stock, Rumyantsev’s admissions regarding
“CMKM always appear[ing] questionable” to him, including because of the cease-
26 and-desist order issued by the Canadian regulatory authorities, remain
uncontroverted.
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1 CMKM’s “questionable” nature rendered him a necessary participant and

2 substantial factor in effecting the multi-billion share unregistered offering.
3 In order for Rumyantsev to defeat the Commission’s motion, he “must set
4 forth specific facts showing that there is a genuine issue for trial.” Anderson v.
5 Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). The “mere existence of a scintilla of
6 evidence” supporting the nonmovant’s position is insufficient. Id. at 252.
7 Additionally, the nonmovant may not rest upon mere allegations or denials of his
8 pleading, but must set forth specific facts showing that there is a genuine issue for
9 trial. Id. At 256. As explained below, Rumyantsev’s recitation of the nonexistence
10 of certain facts that are immaterial to his status as a “necessary participant” and
11 “substantial factor” does not meet his burden to set forth specific facts showing
12 there is a genuine issue for trial. Moreover, the primary “evidence” which
13 Rumyantsev cites in support of most of his assertions of disputed fact are his
14 responses to the Commission’s contention interrogatories; such responses are
15 unsupported by evidence and are simply reiterations, albeit in more specific form,
16 of Rumyantsev’s assertions in his Answer. The Commission is accordingly entitled
17 to summary judgment. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
18 1. The Additional Facts Asserted By Rumyantsev Do Not
19 Controvert That He Was A Necessary Participant And
20 Substantial Factor
21 The first sixteen of the “Statement of Undisputed Material Facts Omitted in
22 Plaintiff’s Motion” constitute a laundry list of acts that Rumyantsev asserts he did
23 not commit. (See Opposition at 2-4.) In moving for summary judgment, the
24 Commission does not assert that he committed any of these acts. Rumyantsev does
25 not cite any authority requiring that the Commission prove any of these facts,
26 singly or in combination, in order to prevail.

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1 Rumyantsev does not create an issue of fact by asserting that “Defendant

2 never”: (1) accepted delivery of the securities; (2) purchased, sold, or otherwise
3 passed title to the securities; (3) owned the securities; (4) solicited the sale or
4 purchase of the securities; (5) sought buyers; (6) promoted sales; (7) accepted
5 orders to sell; (8) served as a broker of record “for the accounts of Defendant
6 Edwards”; (9) directed sales; (10) set the terms and conditions of sale; (11) did not
7 benefit or gain financially “in any direct or meaningful manner” from the sales;
8 never: (12) published quotations in the securities; (13) received instructions to
9 transfer the proceeds of sales of the securities; (14) instructed anyone to transfer the
10 proceeds of the sales; (15) signed off on any new account applications; and (16)
11 signed off on any trade tickets evidencing transactions. (See Opposition at 2-4.)
12 The sole evidence cited by Rumyantsev in support of the first fourteen of the
13 above assertions is his response to the Commission’s Interrogatory No. 2, which
14 asked him to “State all facts that support YOUR contention that ‘DEFENDANT
15 RUMYANTSEV was NOT a necessary and substantial factor in the sale or
16 distribution of the subject securities’” set forth in his Answer. (See Rumyantsev
17 Declaration at 10 (Ex. 1 at 4).) These “facts” do not controvert the facts presented
18 by the Commission establishing Rumyantsev’s role, however, as the Commission
19 has not asserted that Rumyantsev performed any of these acts and does not base its
20 case on evidence he committed such acts.2 In SEC v. Phan, 500 F.3d 895, 906 (9th
21
22 2
In support of “facts” (15) and (16), Rumyantsev cites to his testimony before
23 the NASD. This testimony does not help him, however. First, although
Rumyantsev correctly asserts that he testified that someone else reviewed trading
24 tickets (paragraph 16), he admits that “I review trading blotters on a daily basis,”
and explains that this review, and the separate review of trade tickets by another
25 person, constituted firm “checks and balances.” (Rumyantsev Declaration at 61,
Ex. 2 at 92:2-92:7.) More broadly, he admits he is:
26
just one of the people on the front lines, essentially being a broker and
being somebody who sees every trade that goes through NevWest. I
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1 Cir. 2007), the Ninth Circuit rejected a similar attempt by that defendant to defeat
2 summary judgment by “argu[ing], in a cursory fashion without citing any
3 authority, that ‘[h]e did not participate in any sale of S-8 shares. . . nor did he
4 benefit from any such sales.’”
5 Rumyantsev’s apparent theory is that if he, personally, did not perform the
6 above acts, and instead simply permitted his firm, Defendant NevWest, or its
7 independent contractor, Defendant Darryl Anderson, to perform violative acts, he
8 is not liable. This is not the law. Section 5 provides that it is unlawful for “any
9 person, directly or indirectly” to engage in the unregistered offer and sale of
10 securities. [Emphasis supplied.] It is not determinative to Rumyantsev’s liability
11 whether he personally accepted delivery of the securities, offered them for sale, or
12 engaged in the other acts in which he was aware NevWest and its contractor
13 Anderson were involved. Indeed, several of the “facts” which Rumyantsev asserts
14 create a genuine issue for trial have been rejected by the Ninth Circuit in upholding
15 summary judgment in Section 5 cases. See SEC v. Phan, 500 F.3d at 906, citing
16 Geiger v. SEC, 363 F.3d 481, 487-88 (D.C. Cir. 2004) (someone who plays a
17 crucial role cannot escape liability under Section 5 by avoiding direct involvement
18 in the final sales act); SEC v. Murphy, 626 F.2d at 649 (liability under Section 5 is
19 not confined only to the person who passes title to the security; instead, courts have
20 established the concept of “participant” liability to include persons other than
21 sellers who are responsible for the distribution of unregistered securities).
22
23
would consider myself somebody who is involved in early detection of
24 any kind of patterns that might attract further review.
(Id. 91:9-91:14.) [emphasis supplied] Second, the “fact” that Rumyantsev did not
25 “sign off” on Edwards’ account applications (paragraph 15) does not undercut all
of Rumyantsev’s other admissions regarding his control over NevWest and its
26 compliance function, and his knowledge regarding the CMKM activity in
Edwards’ many NevWest accounts.
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1 The uncontroverted facts establish Rumyantsev’s control over Defendant

2 NevWest as its CEO and one of four Directors, his key decision-making and
3 policy-making roles, and that he handled NevWest’s finances, and trading
4 functions, including record-keeping, compliance and supervision. (Facts ¶¶ 7-13.)
5 Rumyantsev has admitted all of these facts, and has further admitted that he knew
6 that Edwards was delivering the certificates, and that he also knew specific facts
7 about Edwards’ trading including that Edwards was liquidating his CMKM
8 position, that the stock price had significantly increased and that Edwards sold
9 stock through more than 30 NevWest accounts, many of which were trust accounts
10 for unnamed beneficiaries, but for which Edwards used his own social security
11 number. (Facts ¶¶ 57-67.) Although Rumyantsev may have been more passive
12 than Phan or Murphy, like them, he “engaged in steps necessary to the
13 distribution.” See SEC v. Murphy, 626 F.2d at 652. Rumyantsev controlled the
14 broker-dealer, including its key trading and compliance functions. Without
15 facilitation by Rumyantsev, Edwards would not have been able to sell billions of
16 CMKM securities through NevWest and Anderson. Rumyantsev had the ability to
17 stop this huge unregistered distribution of stock; he failed to do so.3
18 ///
19
20 3
Rumyantsev asserts as a fact that Defendant Anthony Santos and his family
21 owned and controlled approximately the same percentage of NevWest as
Rumyantsev. (Opposition at 4, ¶ 21.) It is unclear what relevance, if any,
22 Rumyantsev is asserting this fact has with regard to his own liability. Rumyantsev
was the CEO, and like Santos was one of four decision-makers at NevWest. The
23 Commission named both Rumyantsev and Santos as Defendants.
Rumyantsev’s assertion that Defendants Ginger Gutierrez and James Kinney
24 and Part-Time Management, Inc. sold 88.4 billion CMKM shares (Opposition at 4,
¶ 21) similarly does not diminish his own liability, and has no apparent relevance.
25 That they used brokers other than NevWest does not mean that NevWest and its
principal Rumyantsev were not “necessary participants.” (See Opposition at 9.)
26 Rather, it simply means that other brokers may also have violated Section 5 by
participating in the unregistered distribution of CMKM shares.
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1 2. Rumyantsev Has Presented Insufficient Facts To Meet His

2 Burden To Establish A Defense Of Reliance
3 One of the “facts” set forth by Rumyantsev is that he “relied on [Defendant]
4 Antony Santos, a principal of NevWest. . . responsible for compliance, to conduct
5 inquiries with respect to the sales of the subject securities.” (Defendant’s
6 Memorandum at 4, Statement of Facts ¶ 17.) He similarly asserts that others at
7 NevWest supervised Anderson. (Id. ¶¶ 18-19.) Rumyantsev has not established
8 that any such “reliance” is a sufficient defense to his own liability, however.
9 The specifics of Rumyantsev’s reliance defense are unclear. Because it is an
10 affirmative defense, however, Rumyantsev bears the burden of proof. Unless he
11 presents sufficient facts to carry that burden, he cannot defeat the Commission’s
12 motion for summary judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. at
13 255 (determination of whether a given factual dispute requires submission to a jury
14 must be guided by the substantive evidentiary standards that apply to the case).
15 Assuming Rumyantsev is asserting that he was relying on Santos in his
16 capacity as an attorney, Rumyantsev has not established that he: (1) made complete
17 disclosure to Santos of all facts that he knew about NevWest’s and his own roles in
18 the unregistered CMKM distribution; (2) requested Santos’ advice as to the legality
19 of NevWest’s and his own actions; (3) received advice it was legal; and (4) relied
20 in good faith on that advice. See SEC v. Goldfield Deep Mines Co. of Nevada, 758
21 F.2d 459, 467 (9th Cir. 1985). Moreover, good faith reliance on advice of counsel
22 is not available as a defense to violations of securities laws where the defendant
23 holds a high ranking position in a company engaged in wrongdoing, and acts with
24 scienter. See id., citing SEC v. Bonastia, 614 F.2d 908, 914 (3rd Cir. 1980). For
25 this reason, to the extent that Rumyantsev is asserting that he “relied” on Santos or
26 others, whether as professionals or not, this argument fails.

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1 B. The Undisputed Material Facts Establish That The Commission

2 Is Entitled To The Relief It Seeks
3 Rumyantsev asserts that the Commission is not entitled to the relief it seeks.
4 First, he argues that certain of the factors to be considered by the Court in
5 determining his likelihood of future violations are not present, and by implication he
6 therefore should not be enjoined, barred from participation in penny stock offerings
7 or assessed a civil penalty. Second, he indirectly attacks the Commission’s
8 approximation of his ill-gotten gains, apparently seeking to argue that there is a
9 material issue of fact regarding this issue. However, as explained below,
10 Rumyantsev has not succeeded in presenting a genuine issue of material fact for trial.
11 1. There Is No Genuine Issue Of Material Fact Regarding
12 Rumyantsev’s Likelihood Of Future Violations
13 Rumyantsev presents as a “fact” that he is employed “outside of the
14 securities profession and has absolutely no intention of ever re-entering the
15 securities profession.” (Opposition at 5, ¶ 22 [emphasis original].) His sole
16 evidence is his own Declaration. He also asserts that none of his securities licenses
17 are current. (Id. at 6.) Rumyantsev does not disclose, however, who his current
18 employer is, his position, or his current occupation.
19 As explained by the Commission in its moving papers, whether a reasonable
20 likelihood of future violations exists depends upon the totality of the circumstances;
21 a number of factors are considered by the court in making such a determination. See
22 SEC v. Murphy, 626 F.2d at 655. The existence of past violations, as in this case,
23 may give rise to an inference that there will be future violations. See id.; see also
24 United States v. Odessa Union Warehouse Coop, 833 F.2d 172, 176 (9th Cir. 1987);
25 SEC v. Koracorp Industries, Inc., 575 F.2d 692, 698 (9th Cir. 1978). The fact that
26 the defendant is currently complying with the securities laws does not preclude an

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1 injunction. SEC v. Murphy, 626 F.2d at 655, citing SEC v. Koracorp Industries,
2 Inc., 575 F.2d at 698.
3 After considering whether the Defendant engaged in past violations, the Court
4 usually also considers other factors, including the degree of scienter involved, the
5 isolated or recurrent nature of the violative conduct, the defendant’s recognition of
6 the wrongful nature of the conduct, the likelihood that, because of the defendant’s
7 occupation, future violations may occur, and the sincerity of the defendant’s
8 assurances (if any) against future violations. SEC v. Murphy, 626 F.2d at 655.
9 Here, Rumyantsev is arguing that there is a genuine issue of material fact
10 regarding his likelihood of future violations based on the purported absence of
11 some of the several factors the Court may consider regarding such likelihood.
12 Murphy made the very same argument. In particular, Murphy argued that there
13 was a genuine issue of material fact precluding summary judgment imposing an
14 injunction on the grounds that he had presented an affidavit in which he stated that
15 he intended to comply with the registration requirements in the future. SEC v.
16 Murphy, 626 F.2d at 656. The Ninth Circuit concluded that such an affidavit was
17 not sufficient to preclude summary judgment:
18 . . . Murphy’s argument cannot prevail. One obvious problem
with his position is that it implies that a defendant may always defeat
19 a permanent injunction on summary judgment if he merely states
under oath that he will not commit violations in the future. If the SEC
20 were to resolve all other issues on summary judgment, such a rule
could prevent the Commission from attempting to gain permanent
21 injunctions on motions for summary judgment in those cases when the
clearest violations have been committed.
22
We cannot sanction a rule that would establish such a ritualistic
23 dodge around a permanent injunction on a motion for summary
judgment. To do so would elevate the factors that courts have
24 enumerated for consideration to the status of individual prerequisites
to the issuance of a permanent injunction. That the factors are not
25 individual prerequisites is clear from an examination of the cases in
which courts have approved the granting of injunctions. [citations
26 omitted] As we indicated earlier, the totality of the circumstances is
the appropriate focus of inquiry. [citation omitted]

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1 Id.
2 In this case, for the reasons explained above, there is no genuine issue of
3 material fact that Rumyantsev violated Section 5. Accordingly, an inference that
4 there is a likelihood that he will violate the law in the future may be drawn. In
5 addition, the Court may consider the Murphy factors. It is unclear whether
6 Rumyantsev has created an issue of material fact even with regard to those
7 individual factors, however. First, Rumyantsev is coy about his current profession.
8 The Court really has insufficient information to evaluate whether, in his current
9 occupation, he presents a risk to the investing public. However, the evidence is
10 uncontroverted that Rumyantsev was previously a CEO of a broker-dealer, that he
11 has previously been licensed, and presumably could retake the licensing exams and
12 become licensed again, and that he has a specific knowledge of the industry that
13 would enable him to, once again, re-enter the industry and violate the law again.
14 Given these facts, Rumyantsev has not controverted that his occupation is a factor
15 to be considered in evaluating his likelihood of future violations. Notably, while
16 Rumyantsev assures the Court he does not intend to re-enter the securities
17 business, he makes no assurances he will not violate the law in the future; nor does
18 he recognize the wrongfulness of his conduct. Instead, he blames others, rather
19 than accepting responsibility for his actions and inactions as CEO, head trader, and
20 a person responsible for compliance and finances at NevWest.
21 Rumyantsev finally seeks to argue that he acted without scienter. As
22 explained by the Commission in its moving papers, scienter is not an element the
23 Commission is required to establish to prove Rumyantsev violated Section 5, but it
24 is a factor to consider under Murphy in evaluating Rumyantsev’s likelihood of
25 future violations. Rumyantsev does not create a genuine issue of material fact with
26 regard to his scienter, either, however. As in arguing he was not a “necessary

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1 participant” or “substantial factor” in the unregistered distribution of CMKM

2 stock, he argues that because the facts of this case are not precisely those set forth
3 in the cases cited by the Commission, he acted without scienter. That is not the
4 test. Rather, the question is whether Rumyantsev acted recklessly or knowingly.
5 With the exception of some immaterial facts surrounding Jefferies’ role discussed
6 above, Rumyantsev does not even attempt to deny his knowledge of the
7 circumstances of Edwards’ trading of CMKM stock, that he never made inquiries
8 of Edwards or CMKM, that he was aware of a Canadian cease-and-desist order
9 issued against Casavant in connection with CMKM stock that he considered to be
10 “a big indication that something’s not right with the company,” and that he was
11 aware of an NASD examination of Edwards’ CMKM trading and questions raised
12 by the NASD regarding whether NevWest should file a suspicious activity report
13 regarding Edwards’ trading; nor does he retract his admission that CMKM “always
14 appeared questionable” to him. (See Facts ¶¶ 51-86.) Rumyantsev also does not
15 seek to controvert that he was NevWest’s CEO and one of four people who had
16 policy-making authority; nor is he able to controvert his significant role in
17 NevWest’s compliance function. (See id. ¶¶ 7-13.) Of course, even assuming
18 Rumyantsev has succeeded in establishing a genuine issue of material fact as to his
19 scienter, he may be enjoined for violating section 5. See SEC v. Alpha Telcom,
20 Inc., 187 F. Supp. 2d 1250, 1262 (D. Or. 2002) aff’d sub nom. SEC v. Rubera, 350
21 F.3d 1084 (9th Cir. 2003) (enjoining defendant from future violations of Section 5
22 notwithstanding his lack of scienter and the fact this his profession did not
23 necessarily put him at risk for future violations, noting the presence of the “key
24 factor” of his “past illegal conduct,” the duration of the fraud, the recurrent nature
25 of the violations, and the defendant’s failure to acknowledge wrongdoing or make
26 assurances that he would not commit future violations.)

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1 2. Rumyantsev Has Failed To Meet His Burden To Show That

2 The Commission’s Approximation Of His Ill-Gotten Gains
3 Is Not Reasonable
4 As explained in the Commission’s moving papers, once the Commission has
5 presented evidence of a “reasonable approximation” of a defendant’s ill-gotten
6 gains, the burden shifts to the defendant to “demonstrate that the disgorgement
7 figure was not a reasonable approximation.” SEC v. Platforms Wireless
8 International Corp., 617 F.3d 1072, 1096 (9th Cir. 2010), quoting SEC v. First City
9 Financial Corp., 890 F.2d 1215, 1232 (D.C. Cir. 1989). Because the substantive
10 burden has shifted to Rumyantsev, to create a genuine issue of material fact, he
11 must affirmatively demonstrate that the Commission’s approximation of
12 disgorgement is not reasonable. See Anderson v. Liberty Lobby, Inc., 477 U.S. at
13 255 (determination of whether a given factual dispute requires submission to a jury
14 must be guided by the substantive evidentiary standards that apply to the case);
15 SEC v. Platforms Wireless, 617 F. 3d at 1096 (district court did not abuse its
16 discretion in adopting the Commission’s disgorgement figure in granting summary
17 judgment where defendants simply attempted to distinguish “profits” from
18 “proceeds” without presenting any evidence to rebut the Commission’s proposed
19 disgorgement amount, amounting to a “failure of proof from defendants”).
20 The Commission has presented evidence that Rumyantsev received a modest
21 $34,552.28 in ill-gotten gains. Rumyantsev does not present an alternative
22 calculation of his gains from the illegal conduct. Instead, he argues that he “did
23 not benefit or gain financially in any direct or meaningful manner,” based on his
24 response to a contention interrogatory; that he never received any portion of the
25 proceeds based on his share of ownership of NevWest; and that the Commission’s
26 approximation is “materially different” from the amounts ordered disgorged by

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1 NevWest in a default judgment sought by the Commission, and against Santos

2 pursuant to a settlement.
3 None of these arguments evidence a genuine issue of material fact, however.
4 First, Rumyantsev’s burden to establish that the Commission’s approximation of his
5 gains is not reasonable is not met by the bare and ambiguous assertion that he did
6 not benefit or gain financially in “any meaningful manner.” This argument should
7 be rejected as a “failure of proof” for the reasons stated in Platforms Wireless.
8 Second, Rumyantsev’s arguments regarding his nonreceipt of funds based on
9 his ownership interest in NevWest are unsupported by evidence. Rumyantsev’s
10 argument that the Commission’s estimate of the amount retained by NevWest of
11 $383,914.20 is “materially different” from his own estimate of $300,000 does not
12 meet his burden either. The testimony to which he cites, which constitutes his own
13 rough estimate, was rendered more specific by his admission later in that testimony
14 session that the Commission’s calculation, presented to him as an exhibit, was correct.
15 (See Facts ¶ 97 and cited supporting evidence.) Indeed, in the testimony Rumyantsev
16 himself cites, he states that his “guesstimate” of the amount received by NevWest is
17 $300,000, but that “I never specifically calculated the number.” (Matteson
18 Declaration, Ex. 8 (Rumyantsev testimony) at 108, page 31:7-31:11.) Nor has he
19 specifically calculated that number in opposition to the Commission’s motion.4
20 The fact that the approximation differs from calculations relating to other
21 defendants also does not create a genuine issue of material fact. Regardless of the
22 approximation of NevWest’s gains, the calculation of NevWest’s gains from which
23
4
24 Rumyantsev also confusingly points out that while he shared in a NevWest
commission pool, none of those commissions derived from the sales of CMKM
25 stock by Edwards. (Rumyantsev Declaration ¶ 6.) The Commission specifically
acknowledged that fact in approximating Rumyantsev’s ill-gotten gains; its
26 calculation is not based in any way on such commissions. (See Declaration of
Edward M. Brady ¶ 4.)
14
 Case 2:08-cv-00437-LRH-RJJ Document 164 Filed 01/11/11 Page 16 of 19

1 Rumyantsev’s gains were approximated for purposes of this motion was accepted
2 and admitted by Rumyantsev himself – twice. He admitted the correctness of the
3 calculation of NevWest’s gains both during the actual calculation of the figure by
4 the Commission’s examiner, who was assisted by Rumyantsev himself (see Brady
5 Declaration ¶ 4), and in his investigative testimony. (See Matteson Declaration,
6 Ex. 8 (Rumyantsev Testimony) at 189:23-190:1 & Ex. 1 to Brady Declaration).
7 With regard to the figure used in the Santos settlement, that amount is not
8 admissible in evidence under Fed. R. Evid. 408; nor is there any evidence in the
9 record as to how that settlement amount was calculated that Rumyantsev can point
10 to that creates an issue of fact as to his own disgorgement liability.
11 Rumyantsev’s final argument, that NevWest should be credited with
12 $66,360 it was contractually obligated to pay to Computer Clearing Service, Inc. in
13 clearing fees, fails as a legal matter. See SEC v. JT Wallenbrock, 440 F.3d 1109,
14 1115 (9th Cir. 2006) (the overwhelming weight of authority holds that securities
15 law violators may not offset their disgorgement liability with business expenses).
16 III. CONCLUSION
17 For the reasons stated in this Reply and in the Commission’s moving papers,
18 the Commission is entitled to summary judgment against Rumyantsev, both that he
19 violated Section 5, and that the Commission is entitled to the injunctive,
20 disgorgement, penalty and penny stock bar relief it seeks.
21
22 Dated: January 11, 2011 Respectfully submitted,
23
/s/Karen Matteson
24 Karen Matteson
Attorney for Plaintiff
25 Securities and Exchange Commission
26

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 Case 2:08-cv-00437-LRH-RJJ Document 164 Filed 01/11/11 Page 17 of 19

PROOF OF SERVICE
1
I am over the age of 18 years and not a party to this action. My business address is:
2
[X] U.S. SECURITIES AND EXCHANGE COMMISSION, 5670 Wilshire
3 Boulevard, 11th Floor, Los Angeles, California 90036-3648
Telephone No. (323) 965-3998; Facsimile No. (323) 965-3908.
4
On January 11, 2011, I caused to be served the document entitled REPLY IN
5 FURTHER SUPPORT OF MOTION BY PLAINTIFF SECURITIES AND
EXCHANGE COMMISSION FOR SUMMARY JUDGMENT AGAINST
6 DEFENDANT SERGEY RUMYANTSEV on all the parties to this action addressed
as stated on the attached service list:
7
[X] OFFICE MAIL: By placing in sealed envelope(s), which I placed for
8 collection and mailing following ordinary business practices. I am readily
familiar with this agency’s practice for collection and processing of
9 correspondence for mailing; such correspondence would be deposited with
the U.S. Postal Service on the same day in the ordinary course of business.
10
[ ] PERSONAL DEPOSIT IN MAIL: By placing in sealed
11 envelope(s), which I personally deposited with the U.S. Postal Service.
Each such envelope was deposited with the U.S. Postal Service at Los
12 Angeles, California, with first class postage thereon fully prepaid.
13 [ ] EXPRESS U.S. MAIL: Each such envelope was deposited in a facility
regularly maintained at the U.S. Postal Service for receipt of Express
14 Mail at Los Angeles, California, with Express Mail postage paid.
15 [ ] HAND DELIVERY: I caused to be hand delivered each such envelope to
the office of the addressee as stated on the attached service list.
16
[ ] UNITED PARCEL SERVICE: By placing in sealed envelope(s)
17 designated by United Parcel Service (“UPS”) with delivery fees paid or
provided for, which I deposited in a facility regularly maintained by UPS or
18 delivered to a UPS courier, at Los Angeles, California.
19 [X] ELECTRONIC MAIL: By transmitting the document by electronic mail
to the electronic mail address as stated on the attached service list.
20
[X] E-FILING: By causing the document to be electronically filed via the
21 Court’s CM/ECF system, which effects electronic service on counsel who
are registered with the CM/ECF system.
22
[ ] FAX: By transmitting the document by facsimile transmission. The
23 transmission was reported as complete and without error.
24 I declare under penalty of perjury that the foregoing is true and correct.
25 Date: January 11, 2011 /s/ Karen Matteson
26 Karen Matteson

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 Case 2:08-cv-00437-LRH-RJJ Document 164 Filed 01/11/11 Page 18 of 19

1 SEC v. CMKM DIAMONDS, INC., et al.

United States District Court - District of Nevada
2 Case No. 2:08-CV-00437-LRH-RJJ
(LA-3028)
3
SERVICE LIST
4
Irving M. Einhorn, Esq. (served via electronic and U.S. mail)
5 Law Offices of Irving M. Einhorn
1710 10th Street
6 Manhattan Beach, CA 90266
Email: ime@einhornlaw.com
7 Attorney for Defendant John Edwards
8 Mark S. Dzarnoski, Esq. (served via CM/ECF only)
Gordon & Silver, Ltd.
9 3960 Howard Hughes Parkway, Ninth Floor
Las Vegas, NV 89169
10 Email: mdzarnoski@gordonsilver.com
Attorney for Helen Bagley and 1st Global Stock Transfer LLC
11
Urban A. Casavant (served via electronic and U.S. mail)
12 RR 5 Site 16 Box 29
Prince Albert, Saskatchewan S6V 5R3
13 Canada
Email: ucasavant@shaw.ca
14
John Wesley Hall, Jr., Esq. (served via CM/ECF only)
15 1311 Broadway
Little Rock, AR 72202-4843
16 Email: forhall@aol.com
Attorney for Brian Dvorak
17
Kathleen Tomasso (served via U.S. mail only)
18 9580 Lake Serena Drive
Boca Raton, FL 33496
19 Email: ttomasso@ncfgcomm.com
20 Anthony Tomasso (served via U.S. mail only)
9580 Lake Serena Drive
21 Boca Raton, FL 33496
Email: ttomasso@ncfgcomm.com
22
Sergey Rumyantsev (served via electronic and U.S. mail)
23 1951 North Jones Boulevard, #G-202
Las Vegas, NV 89108
24 Email: chaptak@embarqmail.com
25 Anthony Santos (served via electronic and U.S. mail)
6965 North Durango Drive, Suite 1115-208
26 Las Vegas, NV 89149
Email: Ams.nwst@gmail.com

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 Case 2:08-cv-00437-LRH-RJJ Document 164 Filed 01/11/11 Page 19 of 19

1
NevWest Securities Corporation (served via U.S. mail only)
2 c/o Anthony Santos
6965 North Durango Drive, Suite 1115-208
3 Las Vegas, NV 89149
Email: Ams.nwst@gmail.com
4
Douglas E. Griffith, Esq. (served via electronic and U.S. mail)
5 Kesler & Rust
McIntyre Building, 2nd Floor
6 68 S. Main Street
Salt Lake City, UT 84101
7 Email: dgriffith@kesler-rust.com
Attorney for Daryl Anderson
8
Eric N. Klein, Esq. (served via electronic and U.S. mail)
9 Eric N. Klein & Associates, P.A.
1200 N. Federal Highway, Suite 200
10 Boca Raton, FL 33432
Email: enk@kleinattorneys.com
11
Michael R. Bakst (served via electronic and U.S. mail)
12 PMB 702
222 Lakeview Avenue, #160
13 West Palm Beach, FL 33401
Email: michael.bakst@ruden.com
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