Case 0:07-cv-61693-JAL

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA Case No. 0:07-cv-61693-JAL SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. JOSEPH J. MONTEROSSO, and LUIS E. VARGAS, Defendants. ) ) ) ) ) ) ) ) ) ) ) )

DEFENDANT LUIS E. VARGASS ANSWER, AFFIRMATIVE DEFENSES, & DEMAND FOR JURY TRIAL Pursuant to Federal Rule of Civil Procedure 12(a) and this Courts Order of September 26, 2008 (D.E. 56), Defendant Luis E. Vargas files his Answer and Affirmative Defenses and demands a jury trial on all issues triable by a jury as a matter of right, and states: 1. 2. 3. 4. 5. 6. 7. 8. Vargas denies the allegations in Paragraph 1. Vargas denies the allegations in Paragraph 2. Vargas denies the allegations in Paragraph 3. Vargas denies the allegations in Paragraph 4. Vargas denies the allegations in Paragraph 5. Vargas denies the allegations in Paragraph 6. Vargas denies the allegations in Paragraph 7. Vargas admits that the Court has jurisdiction over this action, and denies the

remaining allegations in Paragraph 8. 9. Vargas admits that venue is proper in this District.

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10.

The allegations of Paragraph 10 do not relate to Vargas and thus do not require a

response from him. 11. Vargas admits that his primary residence is in Broward County, Florida. Vargas

denies the remaining allegations of Paragraph 11. 12. Vargas is without knowledge of the allegations of Paragraph 12 and they are

therefore denied. 13. Vargas is without knowledge of the allegations of Paragraph 13 and they are

therefore denied. 14. Vargas is without knowledge of the allegations of Paragraph 14 and they are

therefore denied. 15. Vargas is without knowledge of the allegations of Paragraph 15 and they are

therefore denied. 16. Vargas is without knowledge of the allegations of Paragraph 16 and they are

therefore denied. 17. Vargas denies the allegations of the first sentence of Paragraph 17. Vargas is

without knowledge whether Monterosso and his brother operated a telecom switch, and that allegation is therefore denied. Vargas admits that he was a bookkeeper in connection with a telecom switch in Los Angeles, California. All remaining allegations of Paragraph 17 are denied. 18. Vargas admits that he started CSI. Vargas is without knowledge of the remaining

allegations of Paragraph 18 and they are therefore denied. 19. Vargas is without knowledge of the allegations of Paragraph 19 and they are

therefore denied.

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20.

Vargas is without knowledge of the allegations of Paragraph 20 and they are

therefore denied. 21. Vargas is without knowledge of the allegations of Paragraph 21 and they are

therefore denied. 22. Vargas is without knowledge of the allegations of Paragraph 22 and they are

therefore denied. 23. Vargas is without knowledge of the allegations of Paragraph 23 and they are

therefore denied. 24. Vargas is without knowledge of the allegations of Paragraph 24 and they are

therefore denied. 25. Vargas is without knowledge of the allegations of Paragraph 25 and they are

therefore denied. 26. Vargas is without knowledge of the allegations of Paragraph 26 and they are

therefore denied. 27. Vargas is without knowledge of the allegations of Paragraph 27 and they are

therefore denied. 28. Vargas is without knowledge of the allegations of Paragraph 28 and they are

therefore denied. 29. Vargas is without knowledge of the allegations of Paragraph 29 and they are

therefore denied. 30. Vargas is without knowledge of the allegations of Paragraph 30 and they are

therefore denied.

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31.

Vargas is without knowledge of the allegations of Paragraph 19 and they are

therefore denied. 32. 33. Vargas denies the allegations in Paragraph 32. Vargas is without knowledge of the allegations of Paragraph 33 and they are

therefore denied. 34. Vargas admits that the general description of call detail records (CDRs) in

Paragraph 34 is correct, but denies the remaining allegations in Paragraph 34. 35. 36. 37. 38. 39. Vargas denies the allegations in Paragraph 35. Vargas denies the allegations in Paragraph 36. Vargas denies the allegations in Paragraph 37. Vargas denies the allegations in Paragraph 38. Vargas is without knowledge of the allegations of Paragraph 39 and they are

therefore denied. 40. 41. 42. 43. 44. 45. Vargas denies the allegations in Paragraph 40. Vargas denies the allegations in Paragraph 41. Vargas denies the allegations in Paragraph 42. Vargas denies the allegations in Paragraph 43. Vargas denies the allegations in Paragraph 44. Vargas is without knowledge of the allegations of Paragraph 45 and they are

therefore denied. 46. 47. 48. Vargas denies the allegations in Paragraph 46. Vargas denies the allegations in Paragraph 47. Vargas denies the allegations in Paragraph 48.

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49. 50. 51.

Vargas denies the allegations in Paragraph 49. Vargas denies the allegations in Paragraph 50. Vargas is without knowledge of the allegations of Paragraph 51 and they are

therefore denied. 52. 53. 54. 55. 56. Vargas denies the allegations in Paragraph 52. Vargas denies the allegations in Paragraph 53. Vargas denies the allegations in Paragraph 54. Vargas denies the allegations in Paragraph 55. Vargas denies the allegations of the first sentence of Paragraph 56. Vargas is

without knowledge of the remaining allegations of Paragraph 56 and they are therefore denied. 57. Vargas denies the existence of any fraudulent scheme of Monterosso and

Vargas, as alleged in Paragraph 57. Vargas is without knowledge of the remaining allegations of Paragraph 57 and they are therefore denied. 58. Vargas is without knowledge of the allegations of Paragraph 58 and they are

therefore denied. 59. Vargas is without knowledge of the allegations of Paragraph 59 and they are

therefore denied. 60. Vargas is without knowledge of the allegations of Paragraph 60 and they are

therefore denied. 61. 62. Vargas denies the allegations in Paragraph 61. Vargas is without knowledge of the allegations of Paragraph 62 and they are

therefore denied.

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63.

Vargas is without knowledge of the allegations of Paragraph 63 and they are

therefore denied. 64. Vargas is without knowledge of the allegations of Paragraph 64 and they are

therefore denied. 65. Vargas is without knowledge of the allegations of Paragraph 65 and they are

therefore denied. 66. Vargas is without knowledge of the allegations of Paragraph 66 and they are

therefore denied. 67. 68. Vargas denies the allegations of Paragraph 67. Vargas is without knowledge of the allegations of Paragraph 68 and they are

therefore denied. 69. Vargas is without knowledge of the allegations of Paragraph 69 and they are

therefore denied. 70. 71. Vargas denies the allegations of Paragraph 70. Vargas is without knowledge of the allegations of Paragraph 71 and they are

therefore denied. 72. 73. Vargas denies the allegations of Paragraph 72. Vargas is without knowledge of the allegations of Paragraph 73 and they are

therefore denied. 74. Vargas is without knowledge of the allegations of Paragraph 74 and they are

therefore denied. 75. Vargas denies the allegations of Paragraph 75.

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76.

Vargas is without knowledge of the allegations of Paragraph 76 and they are

therefore denied. 77. 78. Vargas denies the allegations of Paragraph 77. Vargas is without knowledge of the allegations of Paragraph 78 and they are

therefore denied. 79. 80. Vargas denies the allegations of Paragraph 79. Vargas is without knowledge of the allegations of Paragraph 80 and they are

therefore denied. 81. 82. Vargas denies the allegations of Paragraph 81. Vargas is without knowledge of the allegations of Paragraph 82 and they are

therefore denied. 83. 84. 85. 86. 87. Vargas denies the allegations of Paragraph 83. Vargas denies the allegations of Paragraph 84. Vargas denies the allegations of Paragraph 85. Vargas denies the allegations of Paragraph 86. Vargas is without knowledge of the allegations of Paragraph 19 and they are

therefore denied. 88. Vargas admits that GlobeTel officers requested CDRs and that he provided the

requested CDRs. Vargas denies the remaining allegations of Paragraph 88. 89. Vargas is without knowledge of the allegations of Paragraph 89 and they are

therefore denied. 90. Vargas denies the allegations of Paragraph 90.

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91.

Vargas is without knowledge of the allegations of Paragraph 91 and they are

therefore denied. 92. 93. 94. 95. Vargas denies the allegations in Paragraph 92. Vargas denies the allegations in Paragraph 93. Vargas denies the allegations in Paragraph 94. Vargas is without knowledge of the allegations of Paragraph 95 and they are

therefore denied. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. required. 109. 110. Vargas denies the allegations in Paragraph 109. Vargas denies the allegations in Paragraph 110. Vargas denies the allegations in Paragraph 96. Vargas repeats and incorporates his responses to Paragraphs 1 through 96. Vargas denies the allegations in Paragraph 98. Vargas denies the allegations in Paragraph 99. Vargas denies the allegations in Paragraph 100. Vargas denies the allegations in Paragraph 101. Vargas repeats and incorporates his responses to Paragraphs 1 through 101. Vargas denies the allegations in Paragraph 103. Vargas denies the allegations in Paragraph 104. Vargas denies the allegations in Paragraph 105. Vargas denies the allegations in Paragraph 106. Vargas repeats and incorporates his responses to Paragraphs 1 through 106. Paragraph 108 sets forth a conclusion of law and therefore no response is

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111. 112. 113.

Vargas denies the allegations in Paragraph 111. Vargas repeats and incorporates his responses to Paragraphs 1 through 111. Vargas is without knowledge of the allegations of Paragraph 113 and they are

therefore denied. 114. 115. 116. 117. Vargas denies the allegations in Paragraph 114. Vargas denies the allegations in Paragraph 115. Vargas repeats and incorporates his responses to Paragraphs 1 through 115. Vargas is without knowledge of the allegations of Paragraph 117 and they are

therefore denied. 118. 119. 120. 121. 122. 123. Vargas denies the allegations in Paragraph 118. Vargas denies the allegations in Paragraph 119. Vargas repeats and incorporates his responses to Paragraphs 1 through 119. Vargas denies the allegations in Paragraph 121. Vargas denies the allegations in Paragraph 122. Vargas is without knowledge of the allegations of Paragraph 123 and they are

therefore denied. 124. Vargas denies the allegations of the second sentence of Paragraph 124. Vargas is

without knowledge of the allegations of the first sentence in Paragraph 124 and they are therefore denied. 125. 126. Vargas denies the allegations in Paragraph 125. Vargas denies the allegations in Paragraph 126.

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AFFIRMATIVE DEFENSES For his affirmative defenses and avoidances to the Complaint, Vargas alleges as follows: First Affirmative Defense Pursuant to Federal Rule of Civil Procedure 12(b)(6), the Complaint fails to state a claim upon which relief may be granted. Vargas adopts and incorporates by reference his memoranda in support of his motion to dismiss the Complaint. (D.E. 26 & 35). Second Affirmative Defense Pursuant to Federal Rule of Civil Procedure 9(b), the Complaint fails to plead fraud with the requisite degree of particularity. Vargas adopts and incorporates by reference his memoranda in support of his motion to dismiss the Complaint. (D.E. 26 & 35). Third Affirmative Defense Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), the Complaint fails to state a claim upon which relief could be granted and fails to plead fraud with the requisite degree of particularity for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. Specifically, assuming that Vargas had a duty to disclose under federal regulations, which Vargas denies, such duty was excused, extinguished, or otherwise discharged by the disclosure of all relevant material facts to GlobeTel and its agents. Fourth Affirmative Defense Pursuant to Federal Rules of Civil Procedure 12(b)(6), 9(b), and 10, the Complaint fails to state a claim upon which relief could be granted and fails to plead fraud with the requisite degree of particularity for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5. Specifically, the Complaint seeks to hold Vargas

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liable as a primary violator of these provisions, yet the Complaint fails to adequately allege facts establishing that Vargas personally violated these provisions of the federal securities laws. Instead, as argued more fully in Vargass memoranda in support of his motion to dismiss and incorporated by reference herein, the Commission improperly lumped together Vargas with Monterosso. Fifth Affirmative Defense Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), the Complaint fails to state a claim upon which relief could be granted and fails to plead fraud with the requisite degree of particularity for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5. Specifically, the Complaint fails to adequately allege the in connection with requirement with respect to the purported statements or omissions made by Vargas insofar as such statements are too attenuated to establish a nexus with a securities transaction. In conclusory fashion, the Commission alleges that [a]s a direct result of

Monterossos and Vargas fraudulent scheme, GlobeTel overstated its revenue. (D.E. 1, 56). GlobeTel officers, and not Vargas, had control over and responsibility for the management of GlobeTel and its reporting as well as control over what it reported to the media. For this reason, the Commission has failed to adequately allege the in connection with requirement. Sixth Affirmative Defense Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), the Complaint fails to state a claim upon which relief could be granted and fails to plead fraud with the requisite degree of particularity for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5. Specifically, Vargas did not make any material

representation or omission. It is fundamental that a statement is not a misrepresentation if the

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person being told the statement knows it to be false, and an omission of a fact would not be material if the person to whom a duty of disclosure might arise already knows that fact. According to the Complaint, GlobeTel executives participated in devising the off-net program. For this reason, a reasonable GlobeTel executive could not have relied on the invoices or CDRs allegedly supplied as part of the off-net program. Seventh Affirmative Defense Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), the Complaint fails to state a claim upon which relief could be granted and fails to plead fraud with the requisite degree of particularity for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5. scienter. Eighth Affirmative Defense Pursuant to Federal Rule of Civil Procedure 12(b)(6), the Complaint fails to state a claim upon which relief could be granted for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 because Vargas, in good faith, reasonably relied upon the opinion of accountants and counsel that his actions were in full compliance with all laws and regulations. Ninth Affirmative Defense To the extent the Commission alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5, such alleged violations were not committed by Vargas but rather by other persons not named in the Complaint. Thus Vargas is not legally responsible or liable under any primary or secondary theory of liability for the alleged violations. Specifically, the Complaint fails to adequately plead

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Tenth Affirmative Defense The Commissions claims for injunctive relief should be dismissed because the Commission has an adequate remedy at law, has not satisfied all prerequisites for injunctive relief, and because there is no likelihood that Vargas will commit any future violation of the federal securities laws. Eleventh Affirmative Defense The Commissions requested relief is not supported by the nature and scope of the alleged violations that, even if true, caused no investor harm. Twelfth Affirmative Defense The Commission seeks disgorgement of all ill-gotten gains, compensation, and benefits by virtue of the conduct alleged herein, but the Commission is not entitled to the remedy of disgorgement for all the compensation and benefits insofar as the Courts exercise of this equitable remedy extends only over property causally related to the wrongdoing. Commission may not use disgorgement punitively. The

The Commission cannot establish a

sufficient causal connection between alleged fraudulent acts and any purported compensation of Vargas. Accordingly, disgorgement is not available to the Commission in this case. Reservation of Right to Seek Leave to Plead Additional Defenses Vargas expressly reserves his right to seek leave to amend his affirmative defenses in the event he learns of additional defenses through the course of discovery.

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DEMAND FOR JURY TRIAL Pursuant to Federal Rule of Civil Procedure 38, Vargas demands a trial by jury on all issues triable by a jury as a matter of right. Respectfully submitted, Walter J. Mathews & D. Patricia Wallace Fla. Bar Nos. 0174319 & 0185930 wjmathews or pwallace@wjmlawfirm.com Walter J. Mathews, P.A. Attorneys for Defendant Luis E. Vargas Courthouse Law Plaza 700 SE Third Avenue, Suite 300 Fort Lauderdale, Florida 33316 Tel: (954) 463-1929 Fax: -1920

By:

s/ D. Patricia Wallace D. Patricia Wallace

CERTIFICATE OF SERVICE I certify that that on October 10, 2008, I electronically filed the foregoing document with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being served this day on all counsel of record via transmission of Notices of Electronic Filing generated by CM/ECF or in some other authorized manner for those counsel or parties who are not authorized to receive electronically Notices of Electronic Filing. s/ D. Patricia Wallace D. Patricia Wallace

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