01.20.10

An open letter to Nicholas Czuczko

Posted in All Categories, Fraud, Microcap at 2:36 pm by Michael Goode

When writing about stock fraud and other illegal activities it is important to keep in mind that people’s reputations can be destroyed. Much of the time this is right and just punishment for wrongdoers who have violated the laws and harmed others. However, I am cognizant of the undue harm to a person’s reputation that can come to someone who is charged with a crime by the SEC or others when those charges are later dropped. I have in the past cut a section of an article in response to a request from someone who was named in a securities enforcement action but later dropped from that action. But just as I believe that I should not contribute to the undue sullying of the reputations of those who do not deserve it, I believe that those who violate the laws deserve to have their reputations destroyed.

So when I received an email from Nicholas Czuczko asking me to take down this past blog post about his loss in court to the SEC, my inclination was to not comply. Simply put, my reporting of the SEC’s litigation release on the matter was fair and accurate. Furthermore, a search of SEC litigation releases since that time did not reveal any additional information related to the case. So I am certain that my blog post did not libel Czuczko.

For those of you who are not familiar with the case, here is a quote from the SEC’s litigation release, highlighting the judgment of the US District Court for the Central District of California:

The Commission filed its complaint on August 1, 2006. On December 5, 2007, the court entered judgment enjoining Czuczko from future violations of the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder), as well as from future violations of the ownership disclosure provisions of the federal securities laws (Section 16(a) of the Securities Exchange Act and Rule 16a-3 thereunder). In addition, the court ordered Czuczko to disgorge $1,552,463 in ill-gotten gains plus $121,105.64 in prejudgment interest, imposed a $100,000 civil monetary penalty, and barred him from participating in penny stock offerings and from serving as an officer or director of a publicly traded company.

I suggest that interested readers also read the SEC’s original complaint (pdf)  in the case and the press release announcing the SEC’s civil lawsuit against Czuczko. I have also found and uploaded the court’s final ruling in the case (pdf).

Below is the email I received from Czuczko through the contact form on this blog. Surprisingly enough, he did not accuse me of libel in asking me to remove the blog post. Instead, he cited copyright and trademark infringement.

To whom this will concern:

As a media organization, I’m sure you value your trademarks and copyrighted
material.  Be advised I am requesting removal (as soon as possible) of
copyrighted and trademarked material under U.S. Law that I own from your site.
The webpage is:

http://www.goodevalue.com/2007/12/20/sec-vs-the-stockster/

Since there are no backlinks to the page, the material seems to have no
editorial value to your website.

I have documented that your website has been publishing this content without
permission since 2007.

Although this request is meant to be a friendly request, I am advising you that
I will file a  Digital Millennium Copyright Act (DMCA) take-down notice, and all
other necessary steps to have this content removed from your website, if not
done in a timely manner.  Thank you ahead of time and your timely removal of my
copyrighted and trademarked material from your website.

Sincerely,

Nicholas A. Czuczko

Upon reading the above letter I was flabbergasted; nothing in my blog post could be construed as violating copyright or trademark. My post was text and except for a brief quote from the SEC litigation release (for which Czuczko most certainly does not own the copyright), it was all in my own words. Needless to say, I will not be removing my original blog post.

——

Let me conclude by pointing out that in some cases, issuing a DMCA takedown notice can itself violate the law. I do not know if that would be the case here if Czuczko were to issue a DMCA takedown notice, but anyone who has considered issuing a DMCA takedown notice should consider whether this might apply to them. I suggest that the interested reader see the decision in Online Policy Group v. Diebold, Inc., 337 F.Supp.2d 1195 (N.D. Cal. 2004). Below the court cited the relevant section of the law:

17 U.S.C. ß 512(f) provides as follows:
Misrepresentations.–Any person who knowingly
materially misrepresents under this section–
(1) that material or activity is infringing, or
(2) that material or activity was removed or
disabled by mistake or misidentification,
shall be liable for any damages, including costs and
attorneys’ fees, incurred by the alleged infringer, by
any copyright owner or copyright owner’s
authorized licensee, or by a service provider, who
is injured by such misrepresentation, as the result
of the service provider relying upon such
misrepresentation in removing or disabling access
to the material or activity claimed to be infringing,
or in replacing the removed material or ceasing to
disable access to it.

The court stated (in a decision in favor of the plaintiffs, who had sued Diebold for using a DMCA takedown notice against them), “Thus, any person who sends a cease and desist letter with knowledge that claims of infringement are false may be liable for damages.”

Disclosure: No positions in any stocks mentioned and no relation to anyone mentioned. I have a terms of use.

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