Case of the Day: SEC v. Nagaicevs

The case of the day is SEC v. Nagaicevs (N.D. Cal. 2013). The SEC alleged that Igors Nagaicevs, a Latvian national, had gained unauthorized access to online brokerage accounts and made trades in those accounts to manipulate securities prices in his favor. It brought claims under § 17(a) of the Securities Act and § 10(b) of the Securities Exchange Act.

The SEC sought to make service of process via the Latvian central authority, using the address Nagaicevs had used to open most of his trading accounts. The central authority returned the request for service unexecuted, indicating that “the addressee cannot be located.” The SEC then moved under FRCP 4(f)(3) for leave to serve Nagaicevs by email, using the email address he had provided to the trading firms when he was doing business with them. The judge granted permission, provided that the SEC also was required to mail the documents to addresses in Latvia and the Seychelles associated with Nagaicevs. (Both Latvia and the Seychelles are parties to the Hague Service Convention, and neither objects to service via postal channels). The SEC attempted service by all three methods. The mailed documents were delivered to the Seychelles address, but the documents addressed to the Latvian address were returned as undeliverable. The SEC moved for a default judgment.

The judge, without any analysis, granted the motion for a default judgment. I would like to observe that this seems to be a case where the defendant’s whereabouts were unknown. Thus under Article 1, the Convention does not apply, and so this case does not belong in the Letters Blogatory hall of infamy with Gurung v. Malhotra or FTC v. PCCare247, Inc., both of which erroneously approved service by email even though the Convention did apply. FRCP 4(f)(3) permits service by email unless forbidden by an international agreement, and because the email address was one Nagaicevs had used in the business dealings that were relevant to the SEC’s case, there seems to be no due process problem.

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