Case 0:07-cv-61693-JAL

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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

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12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. On or about January 28, 2008, the Commission filed Plaintiffs Memorandum in Support of its Opposition to Defendant Joseph J. Monterossos Motion to Dismiss (Commissions Opposition), arguing that it did state a claim upon which relief can be granted and did plead fraud with the requisite particularity.

ARGUMENT I. The Commissions Lumping of the Defendants Violates Rule 9(b) In his Supporting Memorandum, Mr. Monterosso alleges that the Commissions Complaint fails to meet the heightened pleading requirements of Rule 9(b) because it fails to plead fraud or aiding and abetting liability with specificity as to each defendant, and instead merely lumps the defendants together. See Supporting Memorandum at 6-7. The Commissions Opposition does not deny that Rule 9(b) applies to the Commissions Complaint. Neither does it deny that lumping fails to satisfy Rule 9(b)s pleading requirements for allegations of fraud or aiding and abetting liability. It simply denies that it has lumped the defendants together, and then restates portions of its Complaint which distinguish between Mr. Monterosso and Mr. Vargas. See Commissions Opposition at 5-6. None of these portions, however, allege any actionable conduct by either Mr. Monterosso or Mr. Vargas. Any reasonable review of the Commissions Complaint reveals that the Commission begins its allegations of the defendants alleged wrongdoing in Paragraph No. 32. From that point in the Complaint up to the beginning of its Claims for Relief, the Commission fails to distinguish between the defendants in any of its allegations of actionable conduct. See Complaint at 32-96. After making one final assertion that its Complaint satisfies Rule 9(b)s pleading requirements, the Commission cites Cippola v. County of Rensselaer, 129 F. Supp. 2d 436, 444-

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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, 2008 Miami Beach, Florida Respectfully Submitted,

/s/ Mark David Hunter_____ Mark David Hunter, Esq. Florida Bar No. 12995 Leser Hunter Taubman & Taubman, PLLC 407 Lincoln Road, Suite 500 Miami Beach, Florida 33139 (305) 604-5547 (Telephone) (305) 604-5548 (Facsimile) E-Mail: mdhunter@lhttlaw.com

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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. Lenard United 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 Notices of 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 (scarboroj@sec.gov) Jeffrey T. Ingelise (CM/ECF) Reid A. Muoio (muoior@sec.gov) Walter J. Mathews (CM/ECF) D. Patricia Wallace (CM/ECF)

/s/ Mark David Hunter______________ Mark David Hunter, Esq.

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