*1 In a series of letters filed with this Court, defendants Hung Wai Shern (“Shern”), Rui Ling Leung (“Leung”), CKB168 Holdings, Ltd., WIN168 Biz Solutions, Ltd., CKB168, Ltd., CKB168 Biz Solutions, Inc., and Cyber Kids Best Education, Ltd. (together, the “Foreign Defendants”) request various forms of relief, due to their concerns about a related federal criminal investigation and a foreign investigation out of Hong Kong. More specifically, the Foreign Defendants request that (1) the depositions of defendants Shern and Leung be adjourned sine die and that they be excused from attending the upcoming settlement conference before this Court, see Letter Regarding Conference (Sept. 9, 2014) (“Def. 9/9/14 Motion”), Electronic Case Filing (“ECF”) Docket Entry (“DE”) #164; (2) the Court issue a protective order “limiting the use of discovery materials to this case only,” Memorandum in Opposition to Motion for Sanctions/Cross-Motion for a Protective Order (Sept. 23, 2014) (“Def. 9/23/14 Opp.”) at 1, DE #171; and (3) the Court “order an expedited discovery schedule ... and a hearing” on the “intermingled agencies[’] actions ...,” Motion for Discovery (Sept. 24, 2014) (“Def. 9/24/14 Motion”) at 3, DE #172-1. Also before the Court is a cross-motion by plaintiff Securities and Exchange Commission (the “Commission,” or “SEC”) for sanctions against the Foreign Defendants. See Motion for Sanctions Against Foreign Defendants (Sept. 19, 2014) (“SEC 9/19/14 Motion”), DE #169-1.[1]

For the reasons that follow, (1) the Foreign Defendants’ motions are denied in substantial part except that, absent further court order, the contents of the depositions of Shern and Leung shall be used in this case only and shall not be shared with any other foreign or domestic law enforcement agencies; and (2) the SEC's cross-motion for sanctions is denied without prejudice.

The SEC commenced this civil action on October 9, 2013, alleging that, through their control of the corporate defendants, which operated under the business name “CKB168” or “CKB,” Shern and Leung, along with another foreign national (defendant Rayla Melchor Santos), perpetrated a massive, multi-national pyramid scheme, primarily targeting members of the Asian-American community. See generally Complaint ¶ 1, DE #1. The SEC alleges that the scheme defrauded hundreds, and possibly thousands, of U.S. investors of millions of dollars. Id.; Reply in Opposition to Foreign Defendants’ Motion for Discovery (Sept. 26, 2014) (“SEC 9/26/14 Opp.”) at 3, DE #173.

At an initial conference held on January 16, 2014, this Court set a discovery schedule pursuant to which all fact discovery must be completed by December 19, 2014. See Minute Entry (docketed Jan. 17, 2014) at 1, DE #116. An in-person settlement conference, which all defendant clients must attend, see id., is currently scheduled for October 30 and 31, 2014 (the “Settlement Conference”), see Minute Entry (July 8, 2014), DE #141.

*2 On July 1, 2014, the SEC moved to compel the Foreign Defendants[2] to produce documents in response to discovery demands served by the SEC back in October 2013. See Motion to Compel (July 1, 2014), DE #137. Rejecting the defense's “unsubstantiated claim of undue burden,” the Court granted the motion in a telephonic proceeding held on August 7, 2014, see 8/17/14 Order at 2. The next day, the Court so-ordered the SEC's proposed scheduling order, to which the Foreign Defendants consented. See Electronic Order (Aug. 8, 2014); Proposed Scheduling Order for Foreign Defendants’ Document Production (Aug. 7, 2014) (“Scheduling Order”), DE #157. Among other things, the so-ordered Scheduling Order set a deadline of September 5, 2014 for production of responsive English-language emails, and September 26, 2014 for all other responsive documents. See Scheduling Order at 1.

The Foreign Defendants did not produce the documents by the court-ordered deadlines and, on September 19, 2014, the SEC moved for an order imposing an adverse inference as a sanction against them. See SEC 9/19/14 Motion. In response, on September 23, 2014, the Foreign Defendants cross-moved for a protective order limiting the use of their discovery materials to this civil matter, on the ground that the SEC is “using discovery in this civil proceeding to make a criminal case,” which is being investigated by the United States Attorney's Office for the Central District of California (“USAO”). See Def. 9/23/14 Opp. at 3.

Meanwhile, counsel for the Foreign Defendants have also requested that defendants Shern and Leung “be excused from appearing in person for the October 30 and 31, 2014 settlement conference or from giving their depositions thereafter.” Def. 9/9/14 Motion at 1. They characterize the deposition requests as “really a subterfuge to seek to make [them] assert their rights under the Fifth Amendment....” Id. at 2. Counsel for Foreign Defendants further assert that, in light of the SEC's aggressive settlement demand, there is no realistic chance of settlement, and that excusing Shern and Leung from participating “is just, fair and the right thing to do.” Id. at 2-3.

On September 24, 2014, the Foreign Defendants, still refusing to provide the court-ordered responses to the SEC's discovery demands, requested a “limited discovery proceeding” before this Court regarding the alleged “intermingling” of this civil proceeding with other domestic and foreign investigations. See Def. 9/24/14 Motion at 1. This request came on the heels of a seizure executed by the Hong Kong Securities and Futures Commission (“HKSFC”) shortly after 11:00 p.m. EST on September 23, 2014, the same day that the Foreign Defendants cross-moved for a protective order. See id. Opining that the timing of the Hong Kong “morning raid” relative to the defense cross-motion “cannot be coincidental,” id., the Foreign Defendants seek expedited discovery to ascertain whether the HKSFC seizure flowed from a request for assistance made by the SEC. See id. at 2, 3.

The SEC has represented that it lacked advance knowledge of the Hong Kong raid, see SEC 9/26/14 Opp.; denies that it is acting as a “stalking horse” for the criminal investigation, see Reply in Opposition to Motion to Excuse Attendance (Sept. 15, 2014) (“SEC 9/15/14 Opp.”) at 2, DE #167; and maintains that its interactions with the USAO and foreign investigators are lawful and appropriate, see, e.g., SEC 9/19/14 Motion at 2. Because the Foreign Defendants have produced “virtually nothing” in discovery and are seeking to avoid depositions, the SEC urges the Court to recommend the imposition of an adverse inference “that the unproduced material would have been detrimental to the Foreign Defendants’ defense to each of the SEC's allegations.” Id. at 3.

I. FOREIGN DEFENDANTS’ MOTIONS

*3 Characterizing this civil action as “a subterfuge,” Def. 9/9/14 Motion at 1, and a “stalking horse,” Def. 9/24/14 Motion at 1, the Foreign Defendants seek expedited discovery and a hearing on “the foreign and domestic agency coordination and cooperation,” id., a protective order “limiting the use of discovery materials to this case only[,]” Def. 9/23/14 Opp. at 1, and an indefinite postponement of the depositions of Shern and Leung, Def. 9/9/14 Motion at 3. In seeking to impugn the SEC's motives in prosecuting this lawsuit, the Foreign Defendants reject the SEC's assertion that the timing of the Hong Kong seizure was coincidental, see Reply in Support (Sept. 29, 2014) (“Def. 9/29/14 Reply”) at 1, and accuse the SEC of concealing the existence of the criminal investigation from the Court and defense counsel, see Def. 9/9/14 Motion at 9. Long on rhetoric but short on supporting caselaw, their arguments are legally and factually unfounded.

A. Defendants’ Due Process Claim

As a preliminary matter, notwithstanding the Foreign Defendants’ repeated references to due process concerns, “[t]he Constitution does not ordinarily preclude a federal agency from initiating simultaneous civil and criminal proceedings in the enforcement of federal law.” SEC v. First Jersey Secs., Inc., No. 85 Civ. 8585 (RO), 1987 WL 8655, at *2 (S.D.N.Y. Mar. 26, 1987) (citing United States v. Kordel, 379 U.S. 1, 11-12 (1970)); accord United States v. Gel Spice Co., 773 F.2d 427, 434 (2d Cir. 1985) (“Civil and criminal enforcement may proceed simultaneously.”); SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1375 (D.C. Cir. 1980) (en banc). Indeed, courts have consistently emphasized the strong public interest in having the SEC pursue civil remedies concurrently with criminal law enforcement activity by federal and local agencies, and to exchange information with those bodies. See, e.g., Dresser, 628 F.2d at 1377, 1380; United States v. Fields, 592 F.2d 638, 646 (2d Cir. 1978) (characterizing SEC's sharing of information from civil action with federal prosecutors as a “commendable example of inter-agency cooperation”); SEC v. Wheeler, No. 11-CV-6169-CJS, 2011 WL 4745048, at *4 (W.D.N.Y. Oct. 7, 2011); First Jersey, 1987 WL 8655, at *3 (“Cooperation between the SEC and the United States Attorney's Office is specifically permitted by statute and has repeatedly been approved by the courts.”); id. at *6; see also Kordel, 397 U.S. at 11 (“It would stultify enforcement of federal law to require a governmental agency such as the FDA invariably to choose either to forgo recommendation of a criminal prosecution once it seeks civil relief, or to defer civil proceedings pending the ultimate outcome of a criminal trial.”).

Consequently, courts have repeatedly rejected similar defense requests to stay proceedings in civil actions, particularly where, as here, no indictment has been returned in the parallel criminal investigation. CFTC v. A.S. Templeton Grp., Inc., 297 F.Supp.2d 531, 534 (E.D.N.Y. 2003) (declining to stay “all testimonial discovery ... pending the expiration of the statute of limitations”: “Even where there are parallel criminal and civil proceedings, a defendant has no constitutional right to a stay pending the outcome of a related criminal case.... Pre-indictment requests for a stay of civil proceedings are generally denied.”); accord Wheeler, 2011 WL 4745048, at *2 (“[T]he weight of authority supports the proposition that district courts will rarely grant a pre-indictment stay[.]”); First Jersey, 1987 WL 8655, at *3-4.[3] Hence, Shern and Leung have no due process right to an indefinite stay of their depositions.

*4 In an attempt to portray this case as the exceptional one referenced in Supreme Court dictum in Kordel, the Foreign Defendants imply that the SEC is prosecuting this action in bad faith. See Letter Responding to Order to Show Cause (Sept. 12, 2014) (“Def. 9/12/14 Letter”) at 2, DE #166; Kordel, 397 U.S. at 11-12 (“We do not deal here with a case where the Government has brought a civil action solely to obtain evidence for its criminal prosecution or has failed to advise the defendant in its civil proceedings that it contemplates criminal prosecution; ... nor with any other special circumstances that might suggest the unconstitutionality or even the impropriety of [the] criminal prosecution.”) (footnote omitted).[4] Similar pretext arguments have fared poorly in the courts. See, e.g., Gel Spice, 773 F.2d at 432 (“[E]ven if the FDA were pursuing criminal enforcement ... at the time of the [regulatory] inspections in question, standing alone this does not imply or suggest that the inspections were conducted in bad faith.”). As the Court of Appeals explained in Dresser:

Dresser, 628 F.2d at 1387 (footnote omitted); accord First Jersey, 1987 WL 8655, at *3 (“In the context of parallel civil and criminal proceedings, a bad faith civil action is one conducted solely for criminal enforcement purposes[,]” and not one in which the agency has a legitimate noncriminal purpose) (emphasis in original).

In the instant action, the fact that the SEC is independently pursuing its own enforcement proceedings is established not only by the representation made by counsel for the SEC, see SEC 9/26/14 Opp. at 1, but by an objective evaluation of the prior court filings and proceedings in this case.

The Foreign Defendants have identified no “special circumstances” -- or indicia of bad faith -- to support their due process challenge. They suggest that the SEC acted improperly in failing to advise the Court and defense counsel “of the involvement of the U.S. Attorney for the Central District of California....” Def. 9/9/14 Motion at 2; see Def. 9/29/14 Reply at 2. But their concealment theory is wrong on the facts as well as the law.

As an initial matter, the SEC did not conceal the existence of the federal criminal investigation from either the Court or counsel for the defendants. On the contrary, at the initial conference held on January 16, 2014, the parties openly discussed the fact that the Federal Bureau of Investigation had seized records from some of the defendants in this case, and counsel for the SEC confirmed that any such seizure was part of a separate investigation. That the Foreign Defendants were represented by a different law firm at the time of that conference, and may not have caused that information to be communicated to their current counsel,[5] does not alter the fact that the SEC did not conceal the existence of the ongoing criminal investigation. Indeed, it is undisputed that ten weeks prior to the scheduled depositions of Shern and Leung, and in response to a request by counsel for the Foreign Defendants, SEC counsel suggested that the lawyer contact the prosecutor handling the federal criminal investigation, in order to secure letters of “safe passage” for Shern and Leung to travel from Hong Kong to the United States without fear of arrest. See SEC 9/19/14 Motion at 3 n.3.; Email dated September 18, 2014 from SEC Counsel (“9/18/14 Email”), DE #169-2 at 14; 8/25/14 Defense Letter to USAO, DE #169-2 at 26-27. Plainly, that referral was not the act of an agency bent on concealment and on depriving defendants of due process. See generally United States v. Stringer, 535 F.3d 929, 940-41 (9th Cir. 2008) (even though the SEC's intent was “to prevent disclosure to defendants of the actual criminal investigation,” no governmental misconduct occurred where the SEC had made no affirmative mis-representations).[6]

*5 Equally unfounded is the Foreign Defendants’ speculation that the Hong Kong seizure was instigated by the SEC. See Def. 9/24/14 Motion at 1 (“We do not find it coincidental that a morning raid occurred in Hong Kong shortly after our clients indicated that they may assert their Fifth Amendment rights.”); Def. 9/29/14 Reply at 1. Counsel for the SEC has assured the Court that prior to receiving the Foreign Defendants’ September 24th submission, the SEC had been unaware of the HKSFC's seizure, and that the SEC has produced all documents received from the HKSFC other than privileged and confidential correspondence. See SEC 9/26/14 Opp. at 2-3. Surely it should come as no surprise that the Hong Kong authorities have displayed an interest in an alleged fraud and pyramid scheme that “may well still be ongoing in Hong Kong.” Id. at 3.

Just as there is no legal prohibition on inter-agency sharing of information, see cases cited supra p. 6, the SEC and foreign authorities are authorized to exchange information and work cooperatively. See 15 U.S.C. §§ 78x(c), (f); Bilateral Memorandum of Understanding (“MOU”) § 3.5.1, DE #173-1 at 13-14; 2002 Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and Exchange of Information (“MMOU”) § 10, DE #173-1 at 32-33.[7] Consequently, the Foreign Defendants have identified no legal or factual basis for their due process challenge to this civil proceeding.

Adopting a new strategy in their most recent submissions, the Foreign Defendants now request a “due process proceeding,” Def. 9/29/14 Reply at 2, and “an expedited discovery schedule focused on the intermingled agencies[’] actions and their coordinated discovery demands ...,” Def. 9/24/14 Motion at 3. In United States v. Gel Spice Co., 773 F.2d 427, the Second Circuit swiftly rejected a similar demand for an evidentiary hearing and discovery of internal government documents; citing earlier precedent, the Court of Appeals declared: “[W]e have held that the burden is on defendants to make a ‘substantial preliminary showing’ of bad faith before an evidentiary hearing or even limited discovery is to be held.” Id. at 434. On facts far more troubling than in the instant case,[8] the Court concluded that Gel Spice had “failed to make a substantial preliminary showing of bad faith.” Id.

So too here, having failed to cite any “special circumstances that raise doubts about the agency's good faith[,]” the Foreign Defendants are not entitled to discovery concerning, or an “inquisition[ ] into the practices of[,] the regulatory agenc[y].”[9] Dresser, 628 F.2d at 1388; cf. United States v. Getto, No. 09 CR 667(HB), 2010 WL 3467860, at *3 (S.D.N.Y. Aug. 25, 2010) (where defendant's assertions were conclusory and speculative, court declined to hold evidentiary hearing on whether cooperation with foreign officials was designed to evade constitutional requirements). Therefore, the motion for discovery and a hearing is denied.

B. Defendants’ Fifth Amendment Privilege Claim

*6 In a related but slightly different argument, counsel for the Foreign Defendants complain that “to require depositions at this point in time is really a subterfuge to seek to make our clients assert their rights under the Fifth Amendment” and then to “seek an order of default in favor of the SEC....” Def. 9/9/14 Motion at 2. They fault the SEC for refusing to enter into a protective order “limiting the use of discovery materials to this case only.” Def. 9/23/14 Opp. at 1.

The Foreign Defendants’ Fifth Amendment challenge is legally flawed in several respects. First, the law is clear “that it is not unconstitutional to force a litigant to choose between invoking the fifth amendment in a civil case, thus risking a loss there, or answering the questions in the civil context, thus risking subsequent criminal prosecution.” Brock, 109 F.R.D. at 119 (collecting cases); see A.S. Templeton, 297 F.Supp.2d at 535 (“Although the invocation of the privilege in this case may lead to an adverse inference, this consequence is not unprecedented, nor is it unconstitutional.”) (internal quotation marks omitted).

Second, to the extent that the defense argument is made on behalf of all Foreign Defendants, “[i]t is well-established that the privilege against compulsory self-incrimination is a personal one, available only to natural individuals and not to corporations.” First Jersey, 1987 WL 8655, at *5; see Doe v. United States, 487 U.S. 201, 206 (1988); Braswell v. United States, 487 U.S. 99 (1988); Bellis v. United States, 417 U.S. 85 (1974). Consequently, the privilege against self-incrimination extends only to the two individual Foreign Defendants -- Shern and Leung -- and not to the various CKB entities; hence, corporate records may not be withheld on Fifth Amendment grounds. See Braswell, 487 U.S. at 119.

Although the Foreign Defendants thus have not established that any constitutional violations have occurred or are likely to occur, the Court nevertheless retains discretion “to stay civil proceedings, postpone civil discovery, or impose protective orders and conditions ‘when the interests of justice seem[ ] to require such action....’ ” Dresser, 623 F.2d at 1375 (quoting Kordel, 397 U.S. at 12 n.27); accord Brock, 109 F.R.D. at 119. Indeed, in order to afford all parties “every reasonable opportunity to litigate a case fully,” and to prevent the exercise of Fifth Amendment rights from becoming “unnecessarily costly,” the Second Circuit has encouraged courts, “upon appropriate motion, [to] seek out those ways that further the goal of permitting as much testimony as possible to be presented in the civil litigation, despite the assertion of the privilege.” United States v. 4003-4005 5th Ave., 55 F.3d 78, 84 (2d Cir. 1995). The goal in doing so is to “select that means which strikes a fair balance and accommodates both parties.” Id. (internal quotation marks and alterations omitted).

Within this framework, the Court considers whether, in its discretion, to grant any of the relief requested by the Foreign Defendants in order to accommodate the individual defendants’ privilege against self-incrimination.

As for their request that the depositions be delayed for an unspecified period of time, see Def. 9/9/14 Motion at 1; Def. 9/12/14 Letter at 2, the Court declines to do so. First, because the Foreign Defendant entities enjoy no Fifth Amendment privilege, to the extent that the depositions sought to be stayed are not only those of Shern and Leung in their individual capacities but also Rule 30(b)(6) depositions of the Foreign Defendant entities, see Fed. R. Civ. P. 30(b)(6), compelling discovery from the entities implicates no interest that would warrant accommodation by the Court. Indeed, the interests of justice and the public interest weigh heavily in favor of moving this year-old case forward, rather than prolonging the current holding pattern.[10]

*7 As for Shern and Leung as individuals, the Court is sensitive to the dilemma they face in having to decide whether to assert their Fifth Amendment privilege (and thus invite an adverse inference) or testify (and potentially self-incriminate). That said, the solution is not to postpone their depositions indefinitely,[11] particularly in a case that has already been subject to considerable delay. The complaint alleges that they and others have been conducting an ongoing pyramid scheme; the public at large, on whose behalf the SEC is charged with protecting the integrity of the financial markets, has a significant interest in the speedy and just resolution of the case. And Shern and Leung are only two of 21 defendants charged in this lawsuit. The interests of two defendants should not trump those of all the other parties in the case. The concerns expressed by Shern and Leung can and should be accommodated without impeding the progress of this multi-party civil action.

The Foreign Defendants have asked the Court to issue a protective order “prohibiting the SEC from sharing information obtained through discovery with the USAO or any other governmental agency.” Def. 9/23/14 Opp. at 3. The relief requested sweeps far too wide and disserves the interests of justice. The SEC is correct that, as a general rule, “it is entirely appropriate for the SEC to share information with the U.S. Department of Justice.” SEC 9/26/14 Opp. at 1. The requested protective order would limit the SEC's ability to cooperate with federal prosecutors, and thus would contravene the authority explicitly granted by Congress. See 15 U.S.C. § 77t(b), 78u(d). Understandably, courts have been reluctant to “erect[ ] walls between the Government's civil and criminal aims” where, as here, no showing has been made that the government is acting in bad faith. United States v. Ianniello, No. 86 Civ. 1552-CSH, 1986 WL 6342, at *1 (S.D.N.Y. June 4, 1986) (declining to issue a “use immunity” order barring the government from using in any subsequent criminal proceedings the “fruits of discovery” obtained from the defendant entity in that civil case); see also SEC v. Rubinstein, 95 F.R.D. 529, 531 (S.D.N.Y. 1982) (denying defendant's motion for order sealing all discovery in civil action, given “clear statutory authorization” for SEC to share information with federal prosecutors).

The Foreign Defendants wrongly assert that “[c]ourts have routinely entered protective orders limiting the use of discovery materials to the litigation at issue, including in SEC civil cases.” Def. 9/23/14 Opp. at 2. However, the protective order in the single case cited by them to support that argument -- SEC v. Reserve Management Co., No. 09-CV-4346(PGG) (S.D.N.Y. Feb. 3, 2011), ECF Document No. 361[12] -- was not prompted by concerns arising out of the SEC's cooperation with a criminal investigation; rather, the defendants objected to the SEC's motion to compel discovery on the ground that the requested documents, including personnel records relating to non-parties, were confidential and irrelevant, and the protective order was designed to address those and other confidentiality concerns. See Order in SEC v. Reserve Management Co., No. 09-CV-4346(PGG) (S.D.N.Y. Jan. 5, 2011), ECF Document No. 355. Notably, the resulting protective order expressly authorized, on notice to the producing party, disclosure to “any government agency having jurisdiction....” Reserve Management Protective Order ¶ 17, DE #171 at 12.

*8 The Court's own research has uncovered a few cases in which courts entered protective orders, narrowly tailored to specific documents, to limit the SEC's sharing of those materials with other agencies. In SEC v. Garber, No. 12 Civ. 9339(SAS)(JCF), 2014 WL 407079 (S.D.N.Y. Jan. 30, 2014), the court ordered defendants to produce their individual tax returns, “subject to the condition that the SEC may not disclose the information contained in those returns beyond the confines of that agency absent further court order.” Id. at *1. And in Ianniello, where the court declined to issue a protective order as to discovery obtained from the defendant entity, the government entered into a stipulation, so-ordered by the court, barring the use in any criminal prosecution of discovery obtained from one of the individual defendants. Ianniello, 1986 WL 6342, at *1.

Drawing on the reasoning of Garber and Ianniello, this Court concludes that, in lieu of staying the depositions of Shern and Leung, the appropriate accommodation in this case is to direct them to appear for their depositions, subject to the following condition: the SEC may not disclose the contents of Shern and Leung's depositions, in their individual capacities, beyond the confines of that agency absent further court order. This limited protective order, applicable solely to the two Foreign Defendants to whom the Fifth Amendment privilege applies, balances the SEC's interest in moving the case forward with the interests of Shern and Leung in knowing that their deposition testimony will not be shared with the USAO absent specific judicial authorization. To the extent that Shern and Leung remain concerned that they are not sufficiently protected against self-incrimination due to the possibility of a future court order permitting disclosure to criminal authorities, they remain free to assert their Fifth Amendment privilege in response to discovery requests and be subjected accordingly to adverse inferences in this proceeding.

C. Shern and Leung's Attendance at the Settlement Conference

The Foreign Defendants have requested that Shern and Leung be excused from appearing at the Settlement Conference, which all clients have been directed to attend. Because the Court has denied Shern and Leung's request to stay their depositions, which are scheduled to occur in the United States during the week following the Settlement Conference, they will in any event have to travel from Hong Kong to the United States for the depositions. The Court swiftly rejects their remaining excuses for not attending the Settlement Conference -- i.e., that settlement is unlikely and that the freeze of their assets impairs their ability to travel. See Def. 9/9/14 Motion at 2. Their pessimism as to the likelihood of settlement is not a sufficient basis for excusing their appearance at the conference. As the SEC aptly notes, under defendants’ logic, “no one who found another party's settlement position objectionable would ever have to attend a settlement conference.” SEC 9/15/14 Opp. at 2. As to their frozen assets, the SEC has offered to stipulate to release sufficient funds to cover their travel expenses. Id. at 1-2. The request of defendants Shern and Leung to be excused from attending the Settlement Conference is therefore denied.

II. THE SEC'S MOTION FOR SANCTIONS

The SEC seeks a recommendation from this Court that an adverse inference be imposed against the Foreign Defendants, “as to all of the pertinent allegations in the complaint,” “as a sanction for their refusal to produce documents despite the Court's [August 8, 2014 Scheduling] Order.” SEC 9/19/14 Motion at 3. While the Court agrees that the “Foreign Defendants cannot refuse to produce documents simply because they object to the SEC sharing [the production] with criminal authorities,” id. at 2, the Court accepts defense counsel's representation that they did not become aware of the parallel criminal investigation until after the Court so-ordered the schedule for production of documents by the Foreign Defendants.[13] However, once they were on notice of the existence of the criminal investigation, they should have promptly filed an application for a protective order, instead of waiting and then responding to the SEC's motion for sanctions, nearly one month later.[14] Their failure to have applied for a stay of the court-ordered deadlines for document production is simply inexcusable.

*9 Nevertheless, rather than severely penalize the Foreign Defendants for their counsel's omission, the Court will instead order them, on pain of sanctions, to produce all the responsive documents, on a rolling basis, by no later than October 16, 2014.[15] The SEC's motion for sanctions is denied without prejudice.

For the foregoing reasons, the Court denies the Foreign Defendants’ request that defendants Shern and Leung be excused from appearing at the Settlement Conference and at their depositions (DE #164); denies the Foreign Defendants’ motion for discovery and a hearing on the SEC's interactions with other investigating authorities (DE #172); denies without prejudice the SEC's motion for sanctions (DE #169-1); and denies the Foreign Defendants’ cross-motion for a protective order (DE #171), except that absent further court, the SEC may not disclose the contents of Shern and Leung's depositions, in their individual capacities, beyond the confines of the SEC. The Foreign Defendants are directed, on pain of sanctions, to produce on a rolling basis, by October 16, 2014, all documents responsive to the outstanding discovery demands served by the SEC.

Any objections to the recommendations contained in this Report and Recommendation must be filed with the Honorable Roslynn R. Mauskopf on or before October 27, 2014. Failure to file objections in a timely manner may waive a right to appeal the District Court order. Absent further court order, the filing of an objection will not stay the Foreign Defendants’ discovery obligations.

SO ORDERED.