Horizon Income Strategies LLC et al v. Shanley et al

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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HORIZON INCOME STRATEGIES LLC,
KEITH PEARSON AND HOWARD WARREN
WILKEWITZ,
Plaintiffs, 	REPORT &
RECOMMENDATION
23-cv-7806 (DLI) (LKE)
vs.
PATRICK SHANLEY and TRADING
STRATEGY & CONSULTING, LLC,
Defendants.
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LARA K. ESHKENAZI, United States Magistrate Judge:
Before the Court, on referral from the Honorable Dora L. Irizarry, is the motion of Plaintiffs
Horizon Income Strategies LLC (“Horizon”) and Keith Pearson (“Pearson,” and collectively with
Horizon, “Plaintiffs”) for default judgment against Defendants Patrick Shanley (“Shanley”) and
Trading Strategy & Consulting, LLP (“Trading S&C,” and together with Shanley, “Defendants”).1
For the reasons set forth below, the Court respectfully recommends granting the motion as to
Plaintiffs’ claims under the Securities Exchange Act (“Exchange Act”), the Investment Advisers
Act, the Commodity Exchange Act (“CEA”), New York General Business Law (“GBL”), breach
of contract, and common law, with the exception of the breach of loyalty, unjust enrichment, and
conversion claims.
1 Plaintiffs notified the Court that Plaintiff Howard Warren Wilkewitz (“Wilkewitz”) had passed away on May 14,
2025. (ECF 27, 28.) The Honorable Dora L. Irizarry dismissed Wilkewitz’s claims on November 26, 2025, pursuant
to Fed. R. Civ. P. 25(a), noting that the deadline to file a motion for substitution as to Wilkewitz had expired, despite
two previous extensions. (Nov. 26, 2025, Order of Partial Dismissal.)
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I. 	BACKGROUND
A. 	Factual Allegations
Pearson and Wilkewitz were the sole members of Horizon, a Colorado limited liability
company. (Compl. ¶ 2, ECF 1; Decl. Keith Pearson in Supp. of Pls.’ Mot. for Default J. (“Pearson
Decl.”) ¶ 3, ECF 24.) Beginning in February 2022, Wilkewitz and Shanley bonded through various
shared interests. (Compl. ¶¶ 13–17; Decl. Howard Warren Wilkewitz in Supp. of Pls.’ Mot. for
Default J. (“Wilkewitz Decl.”) ¶¶ 3–4, ECF 25.) At some point during that time period, Shanley
informed Wilkewitz that he intended to start Trading S&C, a currency trading company. (Compl.
¶ 16; Wilkewitz Decl. ¶ 5.) After creating Trading S&C, Shanley claimed a 98% success rate on
trades and offered a $100,000.00 guarantee against trading losses. (Compl. ¶ 18; Wilkewitz Decl.
¶ 7.) Relying on Shanley’s representation that Shanley would conduct trading activities and turn
the investment into profit, Wilkewitz invested $34,229.70 with Trading S&C between April 16,
2022, and June 28, 2022. (Compl. ¶ 19; Wilkewitz Decl. ¶ 8.)
In May 2022, Wilkewitz introduced Pearson to Shanley. (Compl. ¶ 21; Pearson Decl. ¶4.)
Based on Shanley’s representations, Pearson transferred $10,000.00 into an account that he
believed would be used by Shanley for trading activities. (Compl. ¶ 22; Pearson Decl. ¶¶ 6–7.) In
June 2022, Pearson and Wilkewitz started Horizon as 50/50 partners, with Pearson as Chief
Executive Officer (“CEO”) and Wilkewitz as a partner. (Compl. ¶ 28.) After the formation of
Horizon, Shanley sought investments from Pearson and Wilkewitz individually and from the
business funds of Horizon. (Id. ¶ 29.) On at least six separate occasions, Shanley contacted Pearson
and/or Wilkewitz, in their capacity as Horizon partners, with promises of success based on
misleading or false information, such as fabricated reports of purported successful trades. (Id. ¶¶
30(a)–(f).) Shanley assured Pearson and Wilkewitz that such success would materialize should
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they invest more money through Horizon, stating that it would be possible to make between
$600,000.00 and $1,200,000.00 in approximately ten days’ time. (Id. ¶ 31.) Misleading Pearson
and Wilkewitz about his legal authority to do so, Shanley also boasted about his alleged proficiency
in trading on foreign exchanges. (Id. ¶ 32.)
On or around June 22, 2022, Pearson discovered that Shanley lost the entirety of Pearson’s
$10,000.00 personal investment. (Compl. ¶ 23; Pearson Decl. ¶ 8.) In a seeming attempt to remedy
the situation, Shanley promised that he would put $10,000.00 of his own funds in an investment
account to cover the loss of Pearson’s personal investment. (Compl. ¶ 24; Pearson Decl. ¶ 9.)
Shanley also made several false assurances and misrepresentations to Pearson with respect to his
trading expertise, promising that he would not lose their money again and that Shanley would
realize additional gains. (Compl. ¶¶ 25(a)–(c); Pearson Decl. ¶¶ 9–13, Exs. A–C, ECF 24-1–24-3.)
Pearson and Shanley continued to communicate about their individual investment accounts until
December 8, 2022. (Compl. ¶ 26; Pearson Decl. ¶ 14.) Ultimately, the investment funds provided
by Pearson were either lost by Shanley because of certain trading activities or misappropriated for
Shanley’s personal use. (Compl. ¶ 27; Pearson Decl. ¶ 16.)
On July 11, 2022, Horizon and Trading S&C entered into the Independent Contractor
Agreement (the “Consulting Agreement”) in which Trading S&C, through Shanley’s consulting
services, agreed to strengthen business development on behalf of Horizon (the “Services”).
(Compl. ¶ 33, Ex. 1 at 2–3, ECF 1-4; Pearson Decl. ¶ 18.) The Consulting Agreement included
provisions for payment for services, commissions calculations, guarantees, and choice of law.
(Compl. ¶¶ 34–37, Ex. 1 at 2, 4; Pearson Decl. ¶ 19.) The Consulting Agreement specifically
guaranteed reimbursement of Horizon’s initial $100,000.00 investment. (Pearson Decl. ¶ 21;
Compl. Ex. 1 ¶ 4.) In accordance with the terms of the Consulting Agreement, Horizon deposited
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$100,000.00 into an account for Trading S&C to carry out the Services. (Compl. ¶ 38; Pearson
Decl. ¶¶ 22, 25.) While these invested funds achieved some gains, they also suffered significant
losses during the months of July and August of 2022. (Compl. ¶¶ 38–40; Pearson Decl. ¶¶ 22–25.)
Based on Shanley’s request, Horizon verbally agreed to pay commissions weekly, rather than
monthly as specified in the Consulting Agreement. (Compl. ¶ 42; Pearson Decl. ¶ 26.)
On August 30, 2022, Horizon paid $24,815.30 to Trading S&C via wire transfer to an
alleged Trading S&C company account, representing the commission payment for Shanley’s
services related to the alleged gains reported to Horizon for the prior week (the “Commission
Payment”). (Compl. ¶ 43; Pearson Decl. ¶ 27.) The profits for that week, however, were based on
trades that were still pending; therefore, Horizon made the Commission Payment based on the
false representations by Shanley that the profits had been realized on Horizon’s investment
account. (Compl. ¶ 44; Pearson Decl. ¶ 28.) Since Shanley sent frequent messages reassuring
Plaintiffs of his trading expertise, Plaintiffs had no reason to believe anything peculiar was
happening with Horizon’s investments. (Compl. ¶¶ 45(a)–(b).) On September 7, 2022, Shanley, in
his capacity as CEO of Trading S&C, lost the entire balance of Horizon’s trading account, which
amounted to $265,862.00. (Compl. ¶ 46; Pearson Decl. ¶ 29.)
Pursuant to the terms of the Consulting Agreement, because there were no profits realized
on Horizon’s trading account in August 2022, Trading S&C was required to return the Commission
Payment. (Compl. ¶¶ 47–48, Ex. 1 ¶ 4; Pearson Decl. ¶¶ 21, 30–31.) Trading S&C failed to meet
this obligation. (Id.) The terms of the Consulting Agreement also required the reimbursement of
the principal investment of $100,000.00 by September 9, 2022, but that payment was postponed
as the parties to considered alternative pathways to work together. (Compl. ¶ 49; Pearson Decl. ¶
33.) Since no such agreement was met, on October 5, 2022, Horizon sent a termination letter (the
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“Termination Letter”) demanding that Trading S&C refund the $100,000.00 principal investment.
(Compl. ¶ 50–51, Ex. 2, ECF 1-5; Pearson Decl. ¶¶ 34–35.) After receipt of the Termination Letter,
Shanley proposed an alternative solution, indicating that he had found a way to recover Horizon’s
total loss, not just Horizon’s $100,000.00 principal investment. (Compl. ¶ 52; Pearson Decl. ¶ 36,
Ex. D, ECF 24-4.) Shanley’s purported solution was to raise funds for Horizon from “high net
worth investors” through a call center, JAD Enterprises. (Compl. ¶ 53–54; Pearson Decl. ¶ 37, Ex.
D.)
On October 10, 2022, Horizon and Trading S&C entered the Corporate Promissory Note
(the “Loan Agreement”) in an attempt to reverse their monetary losses. (Compl. ¶ 55, Ex. 3, ECF
1-6; Pearson Decl. ¶ 38.) Pursuant to the Loan Agreement, Horizon loaned Trading S&C a total of
$150,000.00, comprised of the $100,000.00 initial investment that Shanley acknowledged was
owed by Trading S&C pursuant to the Consulting Agreement, and an additional $50,000.00 of
newly invested funds. (Compl. ¶ 56, Ex. 3 ¶¶ 1-2; Pearson Decl. ¶ 39.) The Loan Agreement
established a payment schedule for the return of the principal investment ($100,000.00), the new
investment ($50,000.00), and monthly installments of $35,000.00 for a total of $210,000.00
(Compl. ¶ 57, Ex. 3 ¶ 2; Pearson Decl. ¶ 40.)
On or about October 11, 2022, Horizon provided Trading S&C with $50,000.00 of newly
invested funds in conformity with the Loan Agreement. (Compl. ¶ 59; Pearson Decl. ¶ 41.) Horizon
provided Trading S&C with another $10,000.00 to pay for JAD Enterprises’ services on or about
November 2, 2022. (Compl. ¶ 60; Pearson Decl. ¶ 42.) Trading S&C did not make its first payment
pursuant to the Loan Agreement on November 10, 2022. (Compl. ¶ 62; Pearson Decl. ¶ 44.) On
December 8, 2022, two days before the second payment was due, Shanley acknowledged that
Trading S&C was behind on payments to Horizon but assured that he would get “back on
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schedule.” (Compl. ¶ 63.) After Trading S&C continued to miss payments, on January 25, 2023,
Horizon sent a letter to Shanley, in his capacity as CEO of Trading S&C, demanding past due
payments (the “Demand Letter”) amounting to $105,000.00. (Compl. ¶¶ 64–66, Ex. 4, ECF 1-7;
Pearson Decl. ¶ 45). To date, Horizon has not received any of the payments outlined in the Loan
Agreement, and the debt now totals $360,000.00 plus applicable interest. (Compl. ¶¶ 67–68;
Pearson Decl. ¶¶ 46–47.)
B. 	Procedural History
Plaintiffs filed a Summons and Complaint against Defendants on October 19, 2023. (ECF
1.) On November 27, 2023, service of process was completed on Trading S&C via its registered
agent. (ECF 6.) Trading S&C did not appear or otherwise respond to the Complaint by its response
deadline of December 18, 2023. See Fed. R. Civ. P. 12(a)(1)(A) (“A defendant must serve an
answer [] within 21 days after being served with the summons and complaint[.]”). After several
failed attempts to serve Shanley by traditional means, Plaintiffs requested permission to serve
Shanley via alternative service by email. (ECF 9.) The Court granted Plaintiffs’ request on
February 22, 2024, and Shanley was served with process via email on March 5, 2024. (Feb. 22,
2024 Order; ECF 9–10.) Shanley did not appear or otherwise respond to the Complaint before his
response deadline on March 26, 2024. See Fed. R. Civ. P. 12(a)(1)(A).
Subsequently, the Court entered a Text Order extending Defendants’ time to respond until
April 22, 2024, so long as Defendants were served with the Order by April 8, 2024. (Apr. 1, 2024,
Order.) Trading S&C and Shanley were served with Text Order on April 1, 2024. (ECF 11, 12.)
Defendants did not appear or otherwise respond to the Complaint by the April 22, 2024, response
deadline. (Apr. 1, 2024, Order; ECF 17.) Thereafter, Plaintiffs requested a Certificate of Default
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on May 14, 2024, which the Clerk of Court granted on May 17, 2024. (ECF 15, 17.) Plaintiffs filed
a Motion for Default Judgment on September 6, 2024. (ECF 21.)
On May 14, 2025, Plaintiffs notified the Court that Wilkewitz had passed away. (ECF 27,
28.) The Honorable Dora Lizette Irizarry dismissed Wilkewitz’s claims on November 26, 2025,
pursuant to Fed. R. Civ. P. 25(a). (Nov. 26, 2025, Order of Partial Dismissal.)
II. 	DISCUSSION
A. 	Jurisdiction and Venue
“The district courts shall have original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States.” 28 U.S.C. §1331. Here, Plaintiffs assert claims
under the Exchange Act, 15 U.S.C. § 78aa et seq., the Investment Advisors Act, 15 U.S.C. § 80b-
1 through 15 U.S.C. § 80b-21, and the CEA, 7 U.S.C. § 1 et seq. (See generally Compl.) Because
this action arises under the laws of the United States, the Court has subject matter jurisdiction over
this action. See, e.g., Rocha v. Bakhter Afghan Halal Kababs, Inc., 44 F. Supp. 3d 337, 345
(E.D.N.Y. 2014).
As for Plaintiffs’ remaining claims under New York law, the Court may exercise
supplemental jurisdiction if the claims arise out of the same facts and circumstances as the
Exchange Act, Investment Advisers Act, and CEA claims. See 28 U.S.C. §1367(a). Here, the Court
finds that it may exercise jurisdiction over Count 5 of the Complaint, arising under New York
General Business Law (“GBL”); Counts 8, 9, and 13 for breach of contract; and Counts 6, 7, 10,
11, 12, 14, and 15 arising under various common law causes of action. These claims all arise from
the same factual allegations concerning Plaintiffs’ business relationship with Defendants.
“For a federal court to exercise personal jurisdiction over a defendant, the plaintiff’s service
of process upon the defendant must have been procedurally proper.” Windward Bora LLC v.
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Valencia, No. 19-cv-4147 (NGG) (RER), 2020 WL 6470293, at *2 (E.D.N.Y. Oct. 16, 2020), R. &
R. adopted, 2020 WL 6450286 (E.D.N.Y. Nov. 3, 2020). Federal Rule of Civil Procedure
4(h)(1)(A) provides that a corporate defendant must be served “in the manner prescribed by Rule
4(e)(1) for serving an individual[.]” Fed. R. Civ. P. 4(h)(1)(A). Moreover, under subsection (B),
the summons and complaint must be served by delivering a copy of the summons and of the
complaint to “an officer, a managing or general agent, or any other agent authorized by
appointment or by law to receive service of process and—if the agent is one authorized by statute
and the statute so requires—by also mailing a copy of each to the defendant.” Id. (h)(1)(B). Rule
4(e)(1) states that an individual may be served by “following state law for serving a summons in
an action brought in courts of general jurisdiction in the state where the district court is located or
where service is made[.]” Id. 4(e)(1).
“A corporation may be served ‘by delivering a copy of the summons and of the complaint
to an officer, a managing or general agent, or any other agent authorized by appointment or by law
to receive service of process.” Kramer v. Young Money Ent., LLC, No. 16-cv-1886, 2016 WL
7190079, at *3 (S.D.N.Y. Nov. 18, 2016) (quoting Fed. R. Civ. P. 4(h)(1)(B)); see Perez v. Exquisito
Rest. Inc., No. 23-cv-8707 (OEM) (MMH), 2025 WL 630138, at *3 (E.D.N.Y. Feb. 27, 2025). An
individual or corporation may also be served under Rule 4(h)(1)(A) “pursuant to state law in the
state ... where service is made[.]” LG Cap. Funding, LLC v. MineralRite Corp., No. 16-cv-6158
(PKC) (VMS), 2017 WL 9250297, at *6 (E.D.N.Y. Dec. 1, 2017) (quoting Jean-Louis v. Warfield,
898 F. Supp. 2d 570, 574 (E.D.N.Y. 2012)).
Trading S&C is a Delaware limited liability company. (Compl. ¶ 6.) Under Delaware law,
“service of process on a corporation ‘shall be made by delivering a copy personally to ... the
registered agent of the corporation in this State.” Church-El v. Bank of N.Y., No. 11-cv-877, 2013
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WL 1190013, at *5 (D. Del. Mar. 21, 2013) (quoting 8 Del. C. § 321(a)). Indeed, Delaware law
requires corporations “to maintain a registered agent in the state for receiving service of process.”
Gadre v. Hexanika, Inc., No. 21-cv-11221, 2023 WL 2569882, at *2 (S.D.N.Y. Mar. 20, 2023)
(citing 8 Del. C. § 132(a); 8 Del. C. § 321).
Plaintiffs properly served Defendants in this action. The Delaware Secretary of State’s
website identifies United States Corporation Agents, Inc. as Trading S&C’s registered agent. See
D.E. 	Dep’t 	of 	State, 	Div. 	of 	Corps., 	Corporation 	& 	Business 	Entity 	Database 	Search,
https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch.aspx/ (last visited Jan. 20, 2026).
On November 27, 2023, service of process was completed on Defendant Trading S&C via its
registered agent. (ECF 6.) Plaintiffs subsequently filed proof of service on Trading S&C with the
Court on December 20, 2023. (Id.) After several failed attempts to serve Defendant Shanley,
Plaintiffs requested permission to serve Shanley via alternative service by email. (ECF 9.) The
Court granted Plaintiffs’ request on February 22, 2024, and Shanley was served with process via
email on March 5, 2024. (ECF 9, 10.) Plaintiffs subsequently filed proof of the service on Shanley
with the Court on March 19, 2024. (ECF 10.) Accordingly, Defendants Trading S&C and Shanley
have been properly served in this action.
“[A] civil action may be brought in a judicial district in which any defendant resides, if all
defendants are residents of the State in which the district is located.” 28 U.S.C. §1391(b)(1). A
corporation is deemed to be a resident of “any district” in a “[s]tate which has more than one
judicial district and in which … [that] corporation is subject to personal jurisdiction at the time an
action is commenced.” Id. § 1391(d). Venue is appropriate in this Court pursuant to 28 U.S.C.
§1391 because Defendants engage in continuous and systematic business activities within the State
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of New York and a substantial part of the events or omissions giving rise to the claim occurred in
this judicial district. (Id. § 1391(b)(2); Compl. ¶¶ 10-12.)
B. 	Default Judgment Standard
Under Rule 55 of the Federal Rules of Civil Procedure, there are two steps to entering a
default judgment. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95-96 (2d Cir. 1993). First, the
Clerk of Court enters the default pursuant to Rule 55(a) by notation of the party’s default on the
Clerk’s record of the case. Fed R. Civ. P. 55(a) (providing that “[w]hen a party against whom a
judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is
shown by affidavit or otherwise, the clerk must enter the party’s default.”). This first step is
nondiscretionary. See United States v. Conolly, 694 F. App’x 10, 12 (2d Cir. 2017). Second, after
the Clerk of Court enters a defendant’s default, the court may enter a default judgment. See Fed.
R. Civ. P. 55(b).
Here, on May 17, 2024, the Clerk of the Court entered default against Defendants after
Defendants failed to respond the Complaint or otherwise appear in this action. (ECF 17.) To date,
Defendants have not appeared or moved to vacate the entry of default.
Whether or not a default is issued is within the discretion of the court. When evaluating a
plaintiff’s application for a default judgment, “a court is required to accept all … factual allegations
as true and draw all reasonable inferences in [plaintiff’s] favor.” Finkel v. Romanowicz, 577 F.3d
79, 84 (2d Cir. 2009). “Nevertheless, it remains for the court to consider whether the unchallenged
facts constitute a legitimate cause of action, since a party in default does not admit conclusions of
law.” La Barbera v. ASTC Labs. Inc., 752 F. Supp. 2d 263, 270 (E.D.N.Y. 2010) (internal
quotations and citations omitted); see TAGC Mgmt., LLC v. Lehman, Lee & Xu Ltd., 536 F. App’x
45, 46 (2d Cir. 2013) (“[P]rior to entering default judgment, a district court is required to determine
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whether the plaintiff’s allegations establish the defendant’s liability as a matter of law.”) (internal
quotations and citations omitted).
“Default judgments are generally disfavored and are reserved for rare occasions.” City of
New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 129 (2d Cir. 2011) (quoting Enron Oil Corp.,
10 F.3d at 96) (citation and internal quotation marks omitted). While the Second Circuit has
recognized the “push on a trial court to dispose of cases that, in disregard of the rules, are not
processed expeditiously [and] … delay and clog its calendar,” it has held that a district court must
balance that interest with its responsibility to “afford[] litigants a reasonable chance to be heard.”
Enron Oil Corp., 10 F.3d at 96. Thus, considering the “oft-stated preference for resolving disputes
on the merits,” doubts should be resolved in favor of the defaulting party. See id. at 95.
Accordingly, a plaintiff is not entitled to a default judgment as a matter of right simply because
defendants are in default. See Erwin DeMarino Trucking Co. v. Jackson, 838 F. Supp. 160, 162
(S.D.N.Y. 1993) (noting that courts must “supervise default judgments with extreme care to avoid
miscarriages of justice”).
“In determining whether to enter a default judgment, the Court is guided by the same
factors that apply to a motion to set aside entry of a default.” Double Green Produce, Inc. v. Forum
Supermarket Inc., No. 18-cv-2660 (MKB) (SJB), 2019 WL 1387538, at *2 (E.D.N.Y. Jan. 29,
2019) (citing Enron Oil Corp., 10 F. 3d at 96; Pecarsky v. Galaxiworld.com Ltd., 249 F.3d 167,
170-71 (2d Cir. 2001)). “These factors are 1) whether the defendant’s default was willful; 2)
whether the defendant has a meritorious defense to plaintiff’s claims; and 3) the level of prejudice
the non-defaulting party would suffer as a result of the denial of the motion for default judgment.”
Id. (quoting Mason Tenders Dist. Council v. Duce Constr. Corp., No. 02-cv-9044, 2003 WL
1960584, at *2 (S.D.N.Y. Apr. 25, 2003)) (internal quotations marks omitted).
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As to the first factor, “a defendant’s nonappearance and failure to respond sufficiently
demonstrates willfulness.” Luna v. Gon Way Constr., Inc., No. 16-cv-1411 (ARR) (VMS), 2017
WL 835321, at *4 (E.D.N.Y. Feb. 14, 2017) (collecting cases), R. & R. adopted, 2017 WL 835174
(E.D.N.Y. Mar. 2, 2017). In this case, Defendants did not respond to the Complaint or the motion
for default judgment despite proper service of each. Accordingly, Defendants’ failure to respond
to the Complaint or the instant motion demonstrates that Defendants’ default is willful.
As to the second factor, Defendants’ failure to appear in this action has left the Court unable
to assess whether it has a meritorious defense. “Where a defendant fails to answer the complaint,
courts are unable to make a determination whether the defendant has a meritorious defense to the
plaintiff’s allegations[.]” See Joseph v. HDMJ Rest., Inc., 970 F. Supp. 2d 131, 143 (E.D.N.Y.
2013). Therefore, this factor weighs in favor of granting default judgment.
With respect to the third factor, Plaintiffs will be prejudiced if the motion for default
judgment is denied because they have “no alternative legal redress.” United States v. Myers, 236
F. Supp. 3d 702, 709 (E.D.N.Y. 2017). In other words, “[w]ithout the entry of a default judgment,
Plaintiffs would be unable to recover for the claims adequately set forth in the Complaint.”
Korzeniewski v. Sapa Pho Vietnamese Rest. Inc., No. 17-cv-5721 (MKB) (SJB), 2019 WL 312149,
at *4 (E.D.N.Y. Jan. 3, 2019) (quoting Sola Franchise Corp. v. Solo Salon Studios Inc., No. 14-cv-
946 (JS) (AKT), 2015 WL 1299259, at *15 (E.D.N.Y. Mar. 23, 2015)).
Accordingly, the Court recommends finding that Defendants’ failure to answer or otherwise
respond to the Complaint constitutes an admission of the factual allegations therein. The Court
now assesses the propriety of a default judgment with respect to Plaintiffs’ claims.
C. 	Liability
1. 	Securities Law and Investor and Consumer Fraud Statutes
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a. 	Violations of Section 10(b) of the Exchange Act (15 U.S.C. § 78j(b))
and SEC Rule 10b-5 (Count 1)
The Exchange Act makes it unlawful “[t]o use or employ, in connection with the purchase
or sale of any security registered on a national securities exchange[,] … any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as the [Securities
and Exchange] Commission [(“SEC”)] may prescribe[.]” 15 U.S.C. § 78j(b). Rule 10b-5, which
was promulgated by the SEC under Section 10(b), makes it unlawful to “make any untrue
statement of a material fact or to omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not misleading[.]” 17
C.F.R. § 240.10b-5(b). To prove a Section 10(b) claim, plaintiffs must prove, by a preponderance
of the evidence, that in connection with the purchase or sale of a security:
(1) defendants made an untrue statement of material fact, or omitted
to state a material fact which made what was said, under the
circumstances, misleading; (2) defendants acted with scienter; (3)
plaintiffs justifiably relied on the misstatement or omission; and (4)
plaintiffs suffered an economic loss as a result of the misstatement
or omission.
S.E.C. v. Wyly, 117 F. Supp. 3d 381, 385, n.8 (S.D.N.Y. 2015) (citing Dura Pharms., Inc. v. Broudo,
544 U.S. 336, 341–42 (2005)).
Plaintiffs have established liability for violations of Section 10(b) of the Exchange Act and
Rule 10b-5 against Defendants in paragraphs 71 through 79 in the Complaint, which Defendants
have admitted as true by virtue of their default. (Compl. ¶¶ 71-79); see United Air Lines, Inc. v.
United Airways, Ltd., No. 09-cv-4743 (KAM) (JMA), 2013 WL 1290930, at *4 (E.D.N.Y. Mar. 4,
2013), R. & R. adopted, 2013 WL 1290916 (E.D.N.Y. Mar. 28, 2013); Greyhound Exhibitgroup,
Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992). Defendants misled Plaintiffs
through material omissions, including (i) emails with false assurances regarding Defendants’
investment capabilities and strategies (Compl. ¶¶ 73(a)-(b), 74(a)-(c)), and (ii) failing to disclose
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that neither Trading S&C nor Shanley were appropriately registered under the Investment Advisers
Act from approximately April 2022 until December 2022 (Compl. ¶ 75). Such misrepresentations
and fraudulent activities are in direct violation of Section 10(b) of the Exchange Act and Rule 10b-
5. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5.
Plaintiffs also sufficiently allege that Defendant Shanley had the necessary scienter to
establish liability under Section 10(b) of the Exchange Act and Rule 10b-5. Paragraphs 107
through 110, which Defendants have also admitted by virtue of their default, establish that
“Shanley 	knew 	that 	his 	promises 	for 	returns/profits 	on 	investments 	contained 	false
representations” and that “Shanley intended that the false representations and omissions related to
the investment advisory services would induce Plaintiffs to provide Shanley with investment
funds.” (Compl. ¶¶ 107-10.) Paragraphs 111 and 112, likewise admitted, establishes justified
reliance on “the false representations provided by Shanley,” and paragraph 115 establishes the
economic losses suffered by Plaintiffs. (Compl. ¶¶ 111-12, 115.) As such, Plaintiffs have
sufficiently established liability under Section 10(b) of the Exchange Act and Rule 10b-5.
b. 	Violation of Investment Advisers Act (15 U.S.C. §§ 80b-2, 80b-6,
80b-15) (Count 2).
The Investment Advisers Act provides that it is unlawful for any investment adviser “to
engage in any transaction, practice, or course of business which operates as a fraud or deceit upon
any client or prospective client.” 15 U.S.C. § 80b-6(2); Sec. & Exch. Comm’n v. Penn, 225 F. Supp.
3d 225, 237 (S.D.N.Y. 2016). Plaintiffs have established liability for violations of the Investment
Advisers Act against Defendants in paragraphs 80 through 89 of the Complaint. (Compl. ¶¶ 80–
89); see United Air Lines, Inc., 2013 WL 1290930, at *4; Greyhound Exhibitgroup, Inc., 973 F.2d
at 158. Defendants engaged in a series of deceptive transactions and practices whereby Defendants
falsely represented to Plaintiffs that Shanley was bound by duties as investment advisor who would
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advance the financial interests of their clients. (Compl. ¶ 86.) Defendants breached this duty,
including their fiduciary duties, to Plaintiffs because (1) Trading S&C and Shanley failed to engage
in investment strategies to advance the financial interests of Plaintiffs, and (2) Trading S&C
permitted Shanley to practice as an investment advisor without the proper certifications. (Id. ¶ 87.)
Accordingly, Plaintiffs have established liability under the Investment Advisers Act.
c. 	Misleading or Deceptive Statements and Omissions in Violation of
the Commodity Exchange Act (7 U.S.C. §§ 6b, 6c, 6d, 6h, 6m and 9)
(Count 3).
Under the CEA, 7 U.S.C. §§ 6b, 6c, 6d, 6h, 6m, and 9, Regulation 3.10 (17 C.F.R. § 3.10),
and Regulation 180.1(a) (17 C.F.R. § 180.1(a)), it is unlawful to make any false statement or
omission in connection with the purchase or sale of commodities in interstate commerce. Plaintiffs
who paid money to violators of the CEA may bring a private cause of action under 7 U.S.C. §
25(a)(1)(B)-(C). Pearson has established liability for violations of the CEA against Shanley in
paragraphs 90 through 95 in the Complaint. (Compl. ¶¶ 90–95); see United Air Lines, Inc., 2013
WL 1290930, at *4; Greyhound Exhibitgroup Inc., 973 F.2d at 158. Defendant Shanley violated
the CEA, in connection with the sale of commodities in interstate commerce, by making the
following misleading statements and omissions: (i) failing to disclose Shanley’s and Trading
S&C’s lack of registration with the proper authorities (Compl. ¶ 93(a)–(c)); (ii) making false and
misleading statements or omissions concerning guaranteed return of principal, returns, or
dividends (Compl. ¶ 93(d)); and (iii) misleading Pearson into believing that Shanley and Trading
S&C could participate in “contract for differences” (“CFD”) trading (Compl. ¶ 93(e)).
d. 	Trading S&C’s Vicarious Liability for Failure to Register in
Violation of the CEA (7 U.S.C. §2) (Count 4)
Under the CEA, 7 U.S.C. § 2(a)(1)(B),
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[t]he act, omission, or failure of any official, agent, or other person
acting for any individual, association, partnership, corporation, or
trust within the scope of his employment or office shall be deemed
the 	act, 	omission, 	or 	failure 	of 	such 	individual, 	association,
partnership, corporation, or trust, as well as of such official, agent,
or other person.
Section 2(a)(1)(B) “is a variant of the common law principle of respondeat superior, which holds
an employer strictly liable […] for torts committed by its employees in the furtherance of its
business.” U.S. Commodity Futures Trading Comm’n v. Byrnes, 58 F. Supp. 3d 319, 326 (S.D.N.Y.
2014) (internal quotations and citation omitted). Plaintiffs may hold Trading S&C vicariously
liable “if (1) the Employees were acting as [Trading S&C]’s agents” when the failure to register
with the requisite authorities under the CEA and false or misleading statements occurred; “and (2)
the Employees’ actions were within the scope of their employment.” Id. Here, Shanley was acting
as CEO of Trading S&C when the harm took place, so Shanley qualifies as an “agent” of Trading
S&C. (Compl. ¶ 97.) Moreover, Shanley’s actions were also within the scope of his employment
because the acts occurred within Shanley’s role as a Trading S&C investment adviser managing
the funds of Plaintiffs. (Id. ¶ 81.) Accordingly, Defendant Trading S&C is vicariously liable under
the CEA for Shanley’s false or misleading statements or omissions concerning guaranteed return
of principal, returns, or dividends, which occurred within the scope of his employment as CEO of
Trading S&C. (Id. ¶¶ 96–98); see also Section II(C)(1)(c), supra.
e. 	Violation of GBL § 349 (Count 5)
Pursuant to Section 349(a) of the New York GBL, “deceptive acts or practices in the
conduct of any business, trade or commerce or in the furnishing of any service in this state are
hereby declared unlawful.” To hold a defendant liable under Section 349, a plaintiff must show
“that the defendant engaged in (1) consumer-oriented conduct that is (2) materially misleading and
that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.” MacNaughton
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v. Young Living Essential Oils, LC, 67 F.4th 89, 96 (2d Cir. 2023) (internal quotations and citation
omitted). Plaintiffs have established liability for violations of the GBL against Defendants in
paragraphs 99 through 105 of the Complaint. (Compl. ¶¶ 99–105); see United Air Line, Inc., 2013
WL 1290930, at *4; Greyhound Exhibitgroup, Inc., 973 F.2d at 158. According to the Complaint,
Trading S&C falsely represented to Plaintiffs that Shanley was bound by duties as an investment
advisor who would primarily advance the financial interests of their clients thereby engaging in a
series of deceptive acts and practices in individual and business investments. (Compl. ¶¶ 99–100.)
Trading S&C breached their duties to Plaintiffs in (1) failing to engage in investment strategies to
advance the financial interests of Plaintiffs, and (2) permitting Shanley to practice as an investment
advisor without proper certifications. (Id. ¶ 101.) Plaintiff Horizon suffered at least $360,000.00
in damages, and Plaintiff Pearson suffered at least $10,000.00 in damages. (Id. ¶ 104.) As such,
Defendants’ conduct constitutes consumer-oriented deceptive business practices in violation of the
GBL.
2. 	Contractual Claims
The elements of a breach of contract are the (1) existence of a contract, (2) the plaintiff’s
performance under such contract, (3) the defendant’s breach thereof, and (4) resulting damages.
See W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992); Markov v. Katt, 109 N.Y.S.3d
295, 296 (N.Y. App. Div. 2019); Canzona v. Atanasio, 989 N.Y.S.2d 44, 47 (N.Y. App. Div. 2014).2
a. 	Breach of Consulting Agreement (Count 8)
Horizon has established the requisite elements for a cause of action for Trading S&C’s
breach of the Consulting Agreement in paragraphs 124 through 131 of the Complaint. (Compl. ¶
124–31); see United Air Lines, Inc., 2013 WL 1290930, at *4; Greyhound Exhibitgroup, Inc., 973
2 The Consulting Agreement is governed by Colorado law. (Compl. ¶ 37, Ex. 1 at 4.)
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F.2d at 158; see also W. Distrib. Co., 841 P.2d at 1058. Under the Consulting Agreement, Horizon
was required to “pay incentives to TRADING S&C based on a commission on income earned
through the financial transactions executed by TRADING S&C.” (Consulting Agreement, ECF 1-
4 ¶ 2.) Horizon fully performed under the Consulting Agreement and any subsequent modifications
by paying Trading S&C, specifically Shanley as the adviser, the Commission Payment based on
Shanley’s representation that he had made a profit. (Compl. ¶ 126.) The Commission Payment
should have been returned because the month-end cycle for trades made during August 2022 did
not result in any gains for Horizon. (Id. ¶ 129.) To date, Trading S&C has not returned the
Commission Payment, which constitutes a breach of Paragraph 4 of the Consulting Agreement.
(Id. ¶¶ 130-31.) Therefore, Plaintiffs have established a breach of the Consulting Agreement.
b. 	Breach of Loan Agreement (Count 9)
Horizon has established a cause of action for breach of the Loan Agreement against Trading
S&C in paragraphs 132 through 140 in the Complaint. (Compl. ¶¶ 132–40); see United Air Lines,
Inc., 2013 WL 1290930, at *4; Greyhound Exhibitgroup, Inc., 973 F.2d at 158. The Loan
Agreement confirms the terms and conditions agreed upon by the parties. (Compl. ¶ 55, Ex. 3.)
Horizon fully performed under the terms of the Loan Agreement by providing Trading S&C with
$50,000.00 on October 11, 2022. (Compl. ¶ 134.) Under Paragraph 2 of the Loan Agreement, the
principal investment of $100,000.00 and the additional $50,000.00 investment were due to
Horizon on April 10, 2023. (Id. ¶ 133, Ex. 3 at 1.) In addition, the Loan Agreement provides that
there were to be monthly installments of $35,000.00 paid to Horizon for six months, totaling
$210,000.00. (Id. Ex. 3 at 1.) Trading S&C failed to make its first payment of $35,000.00 to
Horizon on November 10, 2022. (Id. ¶ 136). After Trading S&C continued to miss payments,
Horizon sent Shanley, in his capacity as CEO of Trading S&C, the Demand Letter for the amount
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past due and owed, which was $105,000.00 at the time. (Id. ¶ 138, Ex. 4.) To date, Trading S&C
has not may any payments in performing its obligation under the Loan Agreement, constituting a
breach of Paragraph 2 of the Loan Agreement. (Id. ¶ 139.)
c. 	Breach of Oral Contract (Count 13)
Pearson has established the requisite elements for a cause of action for breach of oral
contract against Defendants in paragraphs 166 through 173 in the Complaint. (Id. ¶¶ 166-173); see
United Air Lines, Inc., 2013 WL 1290930, at *4; Greyhound Exhibitgroup, Inc., 973 F.2d at 158.3
The declaration provided by Pearson outlines the terms and conditions agreed upon by the parties
in the oral contract. (Pearson Decl. ¶¶ 5-16.) Pearson fully performed under the contract by
providing Defendants with his personal investment and creating various accounts on trading
platforms per instructions from Shanley. (Compl. ¶ 169.) Defendants breached their oral
agreements with Pearson by (i) failing to properly manage Pearson’s personal investment, and (ii)
failing to act in good faith to conduct trading activities to realize a profit with the investment. (Id.
¶ 171.) As a direct and proximate cause of this breach, Pearson never saw a return of principal or
profit on his investments. (Id. ¶ 170.)
3. 	Common Law Claims
a. 	Fraud (Count 6)
Under New York law, a claim for fraud requires plaintiffs to demonstrate (1) a
misrepresentation or omission of material fact; (2) made with knowledge of its falsity; (3) with an
intent to defraud; and (4) reasonable reliance (5) that causes damage to the plaintiff. Schlaifer
3 The oral agreement does not fall within the Statute of Frauds because there is no indication that the agreement could
not be completed within one year based on the Complaint and the evidence provided. See Kidz Cloz, Inc. v. Officially
for Kids, Inc., 320 F.Supp.2d 164, 172 (S.D.N.Y. 2004) (holding that under New York law, an oral agreement that does
not specify a definite term of duration is not barred by the Statute of Frauds so long as the agreement can be performed
in one year).
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Nance & Co. v. Est. of Warhol, 119 F.3d 91, 98 (2d Cir. 1997); see also Fairfield Fin. Mortg. Grp.,
Inc. v. Luca, 925 F. Supp. 2d 344, 351 (E.D.N.Y. 2013) (granting default judgment on plaintiff’s
fraud claim). Federal Rule of Civil Procedure 9(b) provides that when a party alleges fraud they
“must state with particularity the circumstances constituting fraud[.]” Fed. R. Civ. P. 9(b). To
satisfy this requirement, a plaintiff must “specify the time, place, speaker, and content of the
alleged misrepresentations.” Caputo v. Pfizer, Inc., 267 F. 3d 181, 191 (2d Cir. 2001). “In addition,
the complaint should explain how the misrepresentations were fraudulent and plead those events
which give rise to a strong inference that the defendant had an intent to defraud, knowledge of the
falsity, or a reckless disregard for the truth.” Id. (internal quotations, citation, and alterations
omitted).
Plaintiffs are entitled to default judgment on their claim for fraud. (Pearson Decl. ¶¶ 11–
13, 36–37, Exs. A-D.) According to the Complaint and Pearson’s Declaration, Shanley knowingly
made false representations and omissions about his investment advisory services with the intention
of inducing Plaintiffs to invest their personal and business funds. (Compl. ¶¶ 107–09; Pearson
Decl. ¶ 10–13.) Plaintiffs justifiably relied on these false representations and omissions provided
by Shanley, both individually and in his capacity as CEO of Trading S&C, which was ultimately
to Plaintiffs’ detriment because Defendants did not use any of the invested funds for legitimate
investment 	activity. 	(Compl. 	¶¶ 	111–12, 	114.) 	Instead, 	Plaintiffs 	allege 	that 	Defendants
misappropriated the funds for Shanley’s personal use. (Id. ¶ 114.) Therefore, the Complaint’s
allegations are sufficiently particular under Rule 9(b) to establish Defendants’ liability for fraud.
b. 	Aiding and Abetting Fraud (Count 7)
To plead a claim for aiding and abetting fraud, the plaintiff must allege: “(1) the existence
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of an underlying fraud; (2) knowledge of this fraud on the part of the aider and abettor; and (3)
substantial assistance by the aider and abettor in achievement of the fraud.” Stanfield Offshore
Leveraged Assets, Ltd. v. Metro. Life Ins. Co., 883 N.Y.S.2d 486, 489 (N.Y. App. Div. 2009)
(citation omitted). Plaintiffs have established the requisite elements for a cause of action against
Trading S&C for aiding and abetting fraud in paragraphs 117 through 123 in the Complaint.
(Compl. ¶¶ 117–23); see United Air Lines, Inc., 2013 WL 1290930, at *4; Greyhound
Exhibitgroup, Inc., 973 F.2d at 158. Plaintiffs established the existence of the underlying fraud in
Count 6 of the Complaint (see Section II(C)(3)(a), supra). In addition, Trading S&C permitted
Shanley to retain his position as CEO and continue to provide investment advisory services to
Trading S&C’s clients, despite knowing that Shanley did not have the proper certifications that are
required by law. (Compl. ¶ 119.) Trading S&C also provided Shanley with substantial assistance
in furtherance of the fraudulent scheme by continuing to provide Shanley with access to company
accounts for both the receipt of investments from Plaintiffs and Shanley’s alleged trading activities.
(Id. ¶ 120.)
c. 	Breach of Fiduciary Duty (Count 10)
In New York, “to establish a breach of fiduciary duty, a plaintiff must prove the existence
of a fiduciary relationship, misconduct by the defendant, and damages that were directly caused
by the defendant’s misconduct.” Kurtzman v. Bergstol, 835 N.Y.S.2d 644, 646 (N.Y. App. Div.
2007); see also Pokoik v. Pokoik, 982 N.Y.S.2d 67, 70 (N.Y. App. Div. 2014). A fiduciary
relationship “exists when one person is under a duty to act for or to give advice for the benefit of
another upon matters within the scope of the relation.” EBC, I, Inc. v. Goldman Sachs & Co., 832
N.E.2d 26, 31 (N.Y. 2005) (citation omitted).
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Plaintiffs have established the requisite elements for a cause of action against Shanley for
breach of fiduciary duty in paragraphs 141 through 149 in the Complaint. (Compl. ¶¶ 141–49); see
United Air Lines, Inc., 2013 WL 1290930, at *4; Greyhound Exhibitgroup, Inc., 973 F.2d at 158.
Plaintiffs retained the financial advising services of Trading S&C through contractual means to
invest the funds that Plaintiffs provided to Trading S&C. (Compl. ¶¶ 141–42.) Shanley, in his
capacity as CEO of Trading S&C, was entrusted with utilizing these funds to conduct legitimate
investment activities and to act in good faith regarding any investment dealings that could affect
the profitability of the funds. (Id. ¶¶ 143–44.) Instead, Shanley utilized his position of power as
CEO of Trading S&C to mislead and induce Plaintiffs to invest substantial amounts of money for
falsely represented investment advisory services. (Id. ¶ 145.) As a direct and proximate cause of
Shanley’s misconduct as CEO of Trading S&C, Shanley breached his fiduciary duty to Plaintiffs,
and Plaintiffs have suffered damages. (Id. ¶ 148.)
d. 	Breach of Loyalty (Count 11)
Plaintiffs’ breach of the duty of loyalty claim is duplicative of its breach of fiduciary duty
claim and should, therefore, be dismissed. “A court may dismiss a claim as duplicative if ‘relying
on the same alleged acts, [the claim] simply seek[s] the same damages or other relief already
claimed in a companion [ ] cause of action.’” Popal v. Slovis, No. 12-cv-3916, 2015 WL 10687614,
at *6 (S.D.N.Y. April 28, 2015) (quoting Hall v. EarthLink Network, Inc., 396 F.3d 500, 508 (2d
Cir. 2005)). Here, Plaintiffs’ breach of loyalty claim seeks the same amount of damages for the
same underlying conduct as their breach of fiduciary duty to claim. (See Pl. Mem. L., ECF 22 at
19 (seeking default judgment on breach of loyalty claim “[f]or substantially the same reasons” as
the breach of fiduciary duty claim.) Accordingly, Plaintiffs should not be granted a default
judgment on the breach of loyalty claim.
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e. 	Negligence (Count 12)
Plaintiffs have established the requisite elements for a cause of action for negligence
against Defendants in paragraphs 159 through 165 in the Complaint. (Compl. ¶¶ 159–65); see
United Air Lines, Inc., 2013 WL 1290930, at *4; Greyhound Exhibitgroup, Inc., 973 F.2d at 158.
To plead a negligence claim, a plaintiff must prove “duty, breach, damages, causation and
foreseeability.” Hyatt v. Metro-North Commuter R.R., 792 N.Y.S.2D 391, 392 (N.Y. App. Div.
2005). Defendants, who held themselves out to be investment and financial advisors, breached
their duty of care to Plaintiffs by (1) failing to engage in investment strategies to advance the
financial interests of Plaintiffs, and (2) permitting Shanley to practice as an investment advisor
without the proper certifications. (Compl. ¶¶ 159–61.) Defendants also breached their duty of care
to Horizon when they induced Horizon to pay Defendants $10,000.00 to retain JAD Enterprises
for services that were never rendered, the purpose for which was to bolster efforts to recover
Horizon’s investments that Defendants lost in the trading market. (Id. ¶ 162.) As discussed above,
supra Section (II)(C)(1)(a), the breach caused foreseeable financial losses to Plaintiffs.
f. 	Unjust Enrichment (Count 14)
In New York, the elements of an unjust enrichment claim are “that (1) the other party was
enriched, (2) at that party’s expense, and (3) that is against equity and good conscience to permit
the other party to retain what is sought to be recovered.” Mandarin Trading Ltd. v. Wildenstein,
944 N.E.2d 1104, 1110 (N.Y. 2011) (internal quotations and citation omitted). Unjust enrichment
is a quasi-contract claim and “contemplates an obligation imposed by equity to prevent injustice,
in the absence of an actual agreement between the parties.” Apple v. Atl. Yards Dev. Co., LLC, No.
11-cv-5550 (JG), 2014 WL 5450030, at *11 (E.D.N.Y. Oct. 27, 2014) (internal quotations and
citation omitted). “Proof of an enforceable contract, either oral or written, precludes recovery
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under the theory of unjust enrichment.” Id.; LG Cap. Funding, LLC v. Ubiquity, Inc., No. 16-cv-
3102 (LDH) (SMG), 2017 WL 3173016, at *3 (E.D.N.Y. May 12, 2017), R. & R. adopted, 2017
WL 3168961 (E.D.N.Y. July 25, 2017) (“Where, as here, … the matter is controlled by contract
and the claim for unjust enrichment seeks the same relief as is sought for breach of contract, the
unjust enrichment claim is properly dismissed as duplicative.”) (internal citation and quotations
omitted). Here, because the Court has found that Plaintiffs have proven the existence of a valid
oral agreement, supra Section II(C)(2)(c), Plaintiffs are precluded from recovering under a theory
of unjust enrichment. The Court therefore respectfully recommends that Plaintiffs’ motion for
default judgment be denied with respect to its unjust enrichment claim and that the claim be
dismissed as duplicative of Plaintiffs’ breach of contract claim.
g. 	Conversion (Count 15)
To state a claim for conversion, a plaintiff must establish (1) legal ownership of a specific,
identifiable piece of property; and (2) the defendant’s exercise of dominion over or interference
with the property in defiance of the plaintiff’s rights. Regions Bank v. Wieder & Mastroianni, P.C.,
526 F. Supp. 2d 411, 413 (S.D.N.Y. 2007), aff’d, 268 F. App’x 17 (2d Cir. 2008). Even if a plaintiff
can establish the elements, a claim for conversion will be dismissed if it is merely duplicative of a
breach of contract claim. See Wechsler v. Hunt Health Sys., Ltd., 330 F. Supp. 2d 383, 431
(S.D.N.Y. 2004) (noting that a conversion claim may be dismissed as duplicative of a contract
claim even though the conversion claim “satisfies the technical elements of that tort” (internal
quotation marks and citation omitted)); Richbell Info. Servs., Inc. v. Jupiter Partners, 765 N.Y.S.2d
575, 590 (N.Y. App. Div. 2003) (holding that plaintiff’s action for conversion, “while satisfying
the technical elements of that tort, was properly dismissed as duplicative of the insufficient contract
claims” (internal citations omitted)). Because the conversion claim arises from the same facts as
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the breach of oral contract claim and does not allege distinct damages, it should be dismissed as
duplicative. NetJets Aviation, Inc. v. LHC Commc’ns, LLC, 537 F.3d 168, 175 (2d Cir. 2008).
D. 	Damages
To calculate damages, Federal Rule of Civil Procedure 55(b)(2) gives courts discretion to
determine whether an evidentiary hearing is necessary or whether to rely on detailed affidavits or
documentary evidence. Action S.A. v. Marc Rich & Co., Inc., 951 F.2d 504, 508 (2d Cir. 1991).
The moving party is “entitled to all reasonable inferences from the evidence offered.” Au Bon Pain
Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981). Here, Plaintiff Horizon seeks of damages in
the amount of $384,815.30, and Plaintiff Pearson seeks damages in the amount of $10,000.
1. 	Plaintiff Horizon
Plaintiff Horizon’s damages stem from Defendant Trading S&C’s breach of the Consulting
Agreement and Loan Agreement. On July 11, 2022, Horizon and Trading S&C entered into the
Consulting Agreement “whereby Trading S&C, through Shanley, would provide consulting
services, including but not limited to subject matter expertise, recommend financial transactions,
execute financial transactions, and attempt to strengthen business development on behalf of
Horizon.” (Pearson Decl. ¶ 18.) According to the Consulting Agreement, Horizon was required to
“pay incentives to TRADING S&C based on a commission on income earned through the financial
transactions executed by TRADING S&C.” (Consulting Agreement ¶ 2.)
Pursuant to the Consulting Agreement, “Horizon funded a[n] … account with $100,000.00
so that Trading S&C could perform the Services.” (Pearson Decl. ¶ 22.) The account fluctuated,
losing $68,160.00 in the first week before rising to $104,370.00 between July 18, 2022, and August
15, 2022. (Id. ¶¶ 22-23.) During the week of August 22, 2022, however, the account recorded
$62,038.00 in trading gains, increasing the account balance to $266,408.00. (Pearson Decl. ¶ 25.)
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Thus, on August 30, 2022, Horizon paid $24,815.30 as a commission payment for the alleged gains
reported for the prior week. (Id. ¶ 27.) The reported gains, however, “were for trades that had not
been closed out” and “Horizon made the commission payment based upon Shanley’s false
representations that the profits had been realized.” (Id. ¶ 28.) Thereafter, “[o]n September 7, 2022,
as a result of Shanley’s trading activities performed in his capacity as CEO of Trading S&C, the
entire balance of Horizon’s trading account, which at the time was $265,862.00, was lost.” (Id. ¶
29.) According to the Consulting Agreement, since the trades made in August 2022 did not result
in any gains to Horizon, “Shanley and Trading S&C were required to return” the $24,815.30
Commission Payment. (Id. ¶¶ 30-32.)
Horizon then terminated the Consulting Agreement and requested that “Trading S&C fulfill
its obligation to pay Horizon back its principal investment of $100,000.00” pursuant to paragraph
4 of the Consulting Agreement. (Id. ¶ 35.) Following continued assurances from Defendant
Shanley, “Horizon and Trading S&C entered into the Corporate Promissory Note (the ‘Loan
Agreement’)” where “Horizon would loan trading S&C a sum of $150,000.00, which comprised
of the $100,000 initial investment that was owed by Trading S&C pursuant to the Consulting
Agreement, and an additional $50,000.00 of newly invested funds.” (Id. ¶¶ 38-39.) The Loan
Agreement further required Trading S&C to make monthly payments to Horizon “[i]n addition to
the [$150,000.00]” for a total amount of $210,000.00. (Id. ¶ 40.) Trading S&C did not make its
first payment to Horizon under the Loan Agreement, which was due on November 10, 2022. (Id.
¶ 44.) Thereafter, Horizon attempted “to contact Shanley by telephone, email, text message and
other means,” but failed to get into contact with him. (Id. ¶ 45.) Ultimately, “Horizon sent Shanley,
in his capacity as CEO of Trading S&C, a letter demanding payment of the amounts that were past
due and owed to Horizon[.]” (Id.) To date, Trading S&C has not made any of the payments to
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Horizon required by the Loan Agreement. (Id. ¶ 46.) Accordingly, the Court respectfully
recommends awarding Horizon $384,815.30 in damages ($24,815.30 for the August 30, 2022,
commission payment; $150,000.00 for the principal amount under the Loan Agreement; and
$210,000.00 for the amount due from Trading S&C under the Loan Agreement).
2. 	Plaintiff Pearson
Plaintiff Pearson has asserted several legal theories to hold Defendant Shanley accountable
for his actions. Although the Court has determined that Defendant Shanley is liable under most of
these theories, Plaintiff is entitled to only a single recovery of $10,000.00 in damages because
Courts do not permit duplicative awards for the same injury. Indu Craft, Inc. v. Bank of Baroda,
47 F.3d 490, 497 (2d Cir. 1995) (“A plaintiff seeking compensation for the same injury under
different legal theories is of course only entitled to one recovery.”). According to Plaintiff Pearson,
he “transferred $10,000 to an account … , with the understanding that Shanley would manage the
account and conduct trading activities to realize a profit.” (Pearson Decl. ¶ 7.) Plaintiff Pearson
invested with Trading S&C because Shanley “provided [him] with several assurances about the
progress of his trading activities” through numerous text messages and emails. (Id. ¶¶ 10-13;
Pearson Decl. Ex. A, ECF 24-1; Pearson Decl. Ex. B, ECF 24-2; Pearson Decl. Ex. C, ECF 24-3.)
Plaintiff Pearson continued to follow up with Shanley about his personal investment until
December 8, 2022. Thereafter, Shanley stopped communicating with Plaintiff Pearson and failed
to return any of his invested funds. Accordingly, the Court recommends awarding Plaintiff Pearson
damages in the amount of $10,000.00.
3. 	Punitive Damages
Plaintiffs contend that they are entitled to punitive damages “because of Shanley’s willful
misrepresentations to (i) deceive Plaintiffs regarding Shanley’s investing abilities and (ii) induce
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Plaintiffs to invest substantial sums of money with Shanley.” (Pl. Mem. L. 18.) An award of
punitive damages is discretionary and should only be awarded when doing so serves the broader
functions of deterrence and retribution. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408,
416 (2003). Although there is no objective measure to determine a particular amount of punitive
damages, Payne v. Jones, 711 F.3d 85, 93 (2d Cir. 2013), the Supreme Court has “identified three
‘guideposts’ for determining whether a punitive damages award is excessive: 1) the degree of
reprehensibility; 2) the disparity between the harm or potential harm and the punitive damages
award; and 3) the difference between the remedy and the civil penalties authorized or imposed in
comparable cases.”4 DiSorbo v. Hoy, 343 F.3d 172, 186 (2d Cir. 2003) (citing BMW of N. Am. v.
Gore, 517 U.S. 559, 574-75 (1996)). The reprehensibility analysis is “the most important indicium
of the reasonableness of a punitive damages award[.]” Gore, 517 U.S. at 575.
Plaintiffs request that the Court assess punitive damages against Shanley, particularly in
light of his willful misrepresentations intended to deceive Plaintiffs regarding his investment and
financial abilities. (Compl. ¶¶ 116, 149, 165.) As alleged in the Complaint, Shanley’s conduct was
misleading. Shanley obtained Plaintiffs’ trust, promised to invest their money, and subsequently
misappropriated the funds, leaving Plaintiffs with significant financial losses. This conduct
constitutes fraud.
The Court, however, respectfully recommends denying an award of punitive damages.
“Although punitive damages may be awarded as part of a default judgment, they may not be
awarded without evidentiary proof.” Burton v. City of New York, 630 F. Supp. 3d 586, 600
4 The Court is also required to consider the defendant’s financial circumstances in determining an award of punitive
damages. Patterson v. Balsamico, 440 F.3d 104, 121 (2d Cir. 2006). By defaulting, however, Shanley “has surrendered
the opportunity to demonstrate that his financial circumstances should constrain the amount of any such award.”
Antoine v. Brooklyn Maids 26, Inc., 489 F. Supp. 3d 68, 102 (E.D.N.Y. 2020) (citing Mathie v. Fries, 121 F.3d 808,
816 (2d Cir. 1997)).
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(S.D.N.Y. 2022) (declining to award plaintiff punitive damages award even though court
determined defendant’s conduct was “unquestionably reprehensible”) (internal citations omitted).
Crucially, the Complaint’s allegations, which are assumed to be true for purposes of liability, are
insufficient to justify an award of punitive damages. Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir.
1974) (holding that punitive damages could not be recovered on default judgment without an
evidentiary hearing and explaining “the quantum of damages remains to be established by proof
unless the amount is liquidated or susceptible of mathematical computation. Punitive damages are
clearly not liquidated or computable[.]” (citations omitted)). Although Plaintiffs submitted
declarations to support their determination for compensatory damages, those declarations do not
contain sufficient evidence regarding Shanley’s motive and mental state. See Don Buchwald &
Assocs., Inc. v. Rich, 723 N.Y.S.2d 8, 9 (N.Y. App. Div. 2001) (“To sustain a claim for punitive
damages in tort, one of the following must be shown: intentional or deliberate wrongdoing,
aggravating or outrageous circumstances, a fraudulent or evil motive, or a conscious act that
willfully and wantonly disregards the rights of another.”) (citation omitted). Moreover, Plaintiffs
have “not suggested any particular amount of punitive damages that should be awarded” nor have
they “cited any cases awarding punitive damages to provide as a point of comparison under the
third ‘guidepost’[.]” Burton, 630 F. Supp. 3d at 601. Given the lack of evidence to support a
punitive damages award, and in light of the significant compensatory damages award, the Court
respectfully recommends denying Plaintiffs’ request for punitive damages.
4. 	Attorney’s Fees and Costs
Plaintiffs’ counsel is entitled to reasonable attorney’s fees to compensate for the work in
recovering damages on behalf of Plaintiffs. See GBL § 349(h) (“The court may award reasonable
attorney’s fees to a prevailing plaintiff.”). Further, Horizon is entitled to its attorney’s fees pursuant
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to Paragraph 8 of the Loan Agreement, which indicates that “[i]f Lender or Borrower sues to
enforce this Note … the prevailing party in any such proceeding shall be entitled to recover its
reasonable attorneys’ fees and costs incurred in the proceeding … from the non-prevailing party.”
(Compl. Ex. 3 at 2.)
To determine the amount of “reasonable attorney’s fees,” the Second Circuit follows a
“presumptively reasonable fee” approach. Agyapong v. Bohan, No. 11-cv-586, 2013 WL 1687737,
at *1 (S.D.N.Y. Apr. 9, 2013) (citing Simmons v. N.Y.C. Transit Auth., 575 F.3d 170, 172 (2d Cir.
2009)). Pursuant to that approach, courts consider the following factors:
(1) the time and labor required; (2) the novelty and difficulty of the
questions; (3) the level of skill required to perform the legal service
properly; (4) the preclusion of employment by the attorney due to
acceptance of the case; (5) the attorney’s customary hourly rate; (6)
whether the fee is fixed or contingent; (7) the time limitations
imposed by the client or the circumstances; (8) the amount involved
in the case and the results obtained; (9) the experience, reputation,
and ability of the attorneys; (10) the “undesirability” of the case;
(11) the nature and length of the professional relationship with the
client; and (12) awards in similar cases.
Id. (citation omitted). The court then “multiplies that hourly rate by the reasonable number of hours
expended—the lodestar—to arrive at a fee award that is ‘presumptively reasonable.’” Id. at 2
(citations omitted).
Starting with the reasonableness of the rates charged, the two attorneys from Locke Lord
LLP who provided services in this action each discounted their normal hourly rates. (See Decl. of
Tara L. Trifon in Supp. of Pls.’ Mot. for Default J. (“Trifon Decl.”) ¶¶ 17-18, ECF 23.)
Specifically, Partner Tara Trifon discounted her rate from $835 to $500 per hour, and Associate
Vienna M. Messina discounted her rate from $720 to $375 per hour. (Id. ¶¶ 17-18, n.1) These
hourly rates are reasonable for this district. See, e.g., Rubin v. HSBC Bank USA, NA, 763 F. Supp.
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3d 233, 243-44 (E.D.N.Y. 2025) (finding hourly rates of up to $650 for partners and $450 for
senior associates reasonable).
Turning to the reasonableness of the hours billed, a party seeking to recover attorneys’ fees
“bears the burden of establishing that the number of hours for which compensation is sought is
reasonable.” Stratakos v. Nassau County, 574 F. Supp. 3d 154, 160 (E.D.N.Y. 2021) (internal
quotation and citation omitted). An application for attorneys’ fees must be supported “by accurate,
detailed, and contemporaneous time records.” Lin v. DJ’s Int’l Buffet Inc., No. 17-cv-4994 (JS)
(AYS), 2025 WL 2409784, at *4 (E.D.N.Y. May 16, 2015) (citations omitted); see also Gesualdi
v. Gen. Concrete, Inc., No. 11-cv-1866 (CBA) (JO), 2013 WL 1192967, at *9 (E.D.N.Y. Feb. 1,
2013) (“The absence of contemporaneous records precludes any fee award in all but the most
extraordinary of circumstances.” (citing Scott v. City of New York, 626 F.3d 130, 133-34 (2d Cir.
2010)). Contemporaneous time records submitted in support of an application need not contain
great detail so long as they identify the general subject matter of time expenditures. See Perdue v.
City Univ. of N.Y., 13 F. Supp. 2d 326, 345 (E.D.N.Y. 1998).
Here, Plaintiffs’ counsel has submitted detailed contemporaneous time records to support
their request for fees. The entries are clear and substantive, and show that Plaintiffs’ counsel spent
a reasonable amount of time working on this matter, including drafting and filing the Complaint,
attending court conferences, and briefing the instant motion. (Trifon Decl. Ex. 2, ECF 23-2.) The
total amount of time reflected in the billing records, 63.70 hours, does not appear above the norm
for a default judgment action. The Court thus respectfully recommends that Plaintiffs be awarded
$24,010.20 in attorneys’ fees.
Finally, Plaintiffs request an award of $1,615.00 for litigation costs. (See Trifon Decl. ¶
18(v).) Reasonable and identifiable out-of-pocket disbursements ordinarily charged to clients are
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recoverable. See LeBlanc–Sternberg v. Fletcher, 143 F.3d 748, 763 (2d Cir. 1998). However, the
party seeking to recover costs “bears the burden of adequately documenting and itemizing the costs
requested.” Ganci v. U.S. Limousine Svc. Ltd., No. 10-cv-3027 (JFB) (AKT), 2015 WL 1529772,
at *8 (E.D.N.Y. April 2, 2015) (quoting Pennacchio v. Powers, No. 05-cv-985 (RRM) (RML),
2011 WL 2945825, at *2 (E.D.N.Y. July 21, 2011)). Here, Plaintiffs support their request for an
award of costs with an itemized accounting of costs incurred. (See Trifon Decl. Ex. 2.) The costs
listed appear reasonable and customary, and include filing fees, court costs, and process service
costs. As such, this Court respectfully recommends that Plaintiff be awarded costs in the amount
of $1,615.00.
5. 	Prejudgment Interest
“The decision to award prejudgment interest is left to the sound discretion of the court.”
Thomas v. iStar Fin., Inc., 508 F. Supp. 2d 252, 264 (S.D.N.Y. 2007) (“Thomas I”) (citing
Gierlinger v. Gleason, 160 F.3d 858, 873 (2d Cir.1998)), aff’d, Thomas v. iStar Fin., Inc., 652 F.3d
141, 150 (2d Cir. 2011) (“Thomas II”). The Second Circuit has held that “judgments that are based
on both state and federal law with respect to which no distinction is drawn shall have applicable
interest calculated at the federal interest rate.” Thomas II, 652 F.3d at 150. The federal interest rate
is based on the average rate of return on one-year Treasury bills for the relevant time period
between the time the claim arises until the entry of judgment pursuant to 28 U.S.C. § 1961(a). See
Thomas I, 508 F. Supp. 2d at 264 (citing Levy v. Powell, No. 00-cv-4499 (SJF), 2005 WL 1719972,
at *3 (E.D.N.Y. July 22, 2005)). The Court recommends granting Plaintiffs prejudgment interest
from the time their claims against Defendants Shanley and Trading S&C arose until the date
judgment is entered.
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6. 	Post-Judgment Interest
The award of post-judgment interest is mandatory on awards in civil cases as of the date
judgment is entered. Lewis v. Whelan, 99 F.3d 542, 545 (2d Cir. 1996) (citing 28 U.S.C. § 1961(a)).
Accordingly, Plaintiffs are entitled to post-judgment interest at the rate established by 28 U.S.C. §
1961 from the date on which the Clerk of Court enters judgment until the date of payment.
III. 	CONCLUSION
Based on the foregoing, the Court respectfully recommends (1) a default judgment be
entered against Defendants for violations of the Exchange Act, Investment Advisers Act, the CEA,
the GBL, contract law, and common law, with the exception of the breach of loyalty, unjust
enrichment, and conversion claims; and (2) Plaintiffs be awarded the following damages:
i. 	$384,815.30, plus applicable pre-judgment and post-judgment interest, on behalf
of Plaintiff Horizon;
ii. 	$10,000.00, plus applicable pre-judgment and post-judgment interest, on behalf of
Plaintiff Pearson;
iii. 	$24,010.20 for attorney’s fees; and
iv. 	$1,615.00 for costs.
A copy of this Report and Recommendation is being served on Plaintiffs via ECF. The
Clerk of Court is respectfully directed to mail a copy of this Report and Recommendation to
Defendants at the following addresses forthwith: 131 Continental Drive, Suite 305, Newark,
Delaware 19713; and to Defendant Patrick Shanley via email at crenderos221@gmail.com,
Patrick.anthony.shanley@gmail.com, 	and 	patrickashanley@hotmail.com. 	Plaintiffs 	are 	also
directed to mail a copy of this Report and Recommendation and file proof of service of mailing by
January 26, 2026.
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Within 14 days of service, any party may serve and file specific written objections to this
Report and Recommendation. 28 U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 72(b). Any requests for
an extension of time to file objections shall be directed to Judge Irizarry. If a party fails to object
timely to this Report and Recommendation, it waives any right to further judicial review of this
decision. See Miller v. Brightstar Asia, Ltd., 43 F.4th 112, 120 (2d Cir. 2022).
SO ORDERED.
Brooklyn, New York
January 20, 2026
______________________________
LARA K. ESHKENAZI
United States Magistrate Judge
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