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Securities and Exchange Commission v. Mattera

September 26, 2012

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
JOHN A. MATTERA, ET AL., DEFENDANTS, AND ANNA A MATTERA, ET AL., RELIEF DEFENDANTS.



The opinion of the court was delivered by: P. Kevin Castel, District Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON CIVIL CONTEMPT

Plaintiff Securities and Exchange Commission (the "SEC") moves or an order finding defendant John A. Mattera ("John Mattera" or "Mattera") and relief defendant Ann A. Mattera ("Ann Mattera") (referred to collectiely as the "Mattera Defendants") in civil contempt. Specifically, the SEC asserts that John Mattera and Ann Mattera, who is John Mattera's mother, have disobeyed this Court's orders dated November 17, 201, November 29, 2011, and December 1, 2011 (referred to collectively as the "Court's Orders").

Set forth below are the Court's Findings of Fact and Conclusions of Law. Having considered the parties' submission and the evidence admitted into the record, the Court finds by clear and convincing evidence that the Mattera Defendants violated the Court's Orders. The Mattera Defendants are therefore adjudged to be in contempt of Court, and the SEC's motion is granted.

FINDINGS OF FACT

I. Procedural History

On November 17, 2011, the SEC filed its Complaint. (Docket # 1 ("Compl.").) In its Complaint, the SEC alleged that Mattera and the other named defendants had engaged in the fraudulent and sales of securities. (Id.) Specifically, the Complaint alleged that the defendants solicited more than $12.6 million in investments in special purpose investment vehicles ("SPVs"). In these SPVs, the defendants purported to hold shares in certain privately-held companies expected to launch initial public offerings ("IPOs"). (Id. ¶¶ 1--4.) The Complaint further alleged, however, that the SPVs did not in fact hold such shares and defendants simply transferred investor funds to accounts under their control. (Id. ¶ 5.)

a. The Orders

On November 17, 2011 the SEC applied ex parte to the Court for a Temporary Restraining Order, and Order Freezing Assets and Granting Other Relief ("Temporary Restraining Order" or "TRO"). (Docket # 4; Sept. 17, 2012 Evid. Hr'g ("Sept. 17 Hr'g") Ex. 20.) The Court granted the SEC's application for the TRO that same day. (Id.)

The TRO contained provisions ordering expedited discovery. (Id. § XVIII.) The TRO permitted the parties to "[o]btain the production of documents, within three (3) calendar days from service by facsimile, email or otherwise of a request or subpoena, from any persons or entities, including non-party witnesses . . . ." (Id. § XVIII(2).) The TRO stated that its expedited discovery provisions "will remain in place beyond any hearing on the [SEC]'s application for preliminary injunction." (Willenken Decl. Ex. A at A7.) The TRO was mailed to Mattera and Ann Mattera, and Ann Mattera personally received and signed for delivery. (Willenken Decl. Ex. B.)

On November 29, 2011, the Court held a hearing on the SEC's application for a preliminary injunction. At the hearing, the SEC presented the Court with a Stipulation and Consent Order Imposing Preliminary Injunction and Other Relief Against Defendant John A. Mattera (the "Consent Order") signed by John Mattera. (Docket # 25; Sept. 17 Hr'g Ex. 21.) The Consent Order was entered as an Order of the Court and filed that same day. (Id.) Ann Mattera did not appear at the hearing or file an opposition.

The Consent Order imposed a number of conditions on Mattera. It ordered him to hold and retain within his control, and otherwise prevent "any withdrawal, transfer, pledge, encumbrance, assignment, dissipation, concealment, or other disposal of any assets, funds, or other property," including money and personal property, whether held in Mattera's name or for his direct or indirect beneficial interest. (Willenken Decl. Ex. A at A13--A17.)

The Consent Order enumerated specific exceptions to the prohibition described above. First, it excepted the assets pledged as collateral by Mattera's then wife, Lin Phan, for Mattera's bail application. (Id. § VI(1).) Second (and germane to this motion), the Consent Order permitted Mattera to spend money or income that Mattera earned after the date of the Consent Order under certain conditions. More specifically, it permitted Mattera to spend money provided that "Mattera or one or more of the Mattera Entities receives the money . . . from sources other than any of the defendants or relief defendants in this case or any person or entity affiliated with any of the other defendants or relief defendants in this case; and (b) Mattera or one or more of the Mattera Entities earns or otherwise obtain the money from activities that do not in any way involve the offer, purchase or sale of any security." (Id. § VI(2).) The Consent Order defined income meeting these criteria as "Post-Tax Income." (Id. § VI(3).) Mattera was then permitted to "use 75% of the Post-Tax Income for his own purposes," provided he pay 25% of such income into a Court Registry Investment System ("CRIS") account within three days of the end of the month in which it was earned. (Id.)

The Consent Order permitted Mattera to incur debt under specifically enumerated circumstances. Mattera could use credit cards or otherwise incur debt "only" for: "reasonable expenses to travel to New York City for required court appearances in this case and the criminal case against him;" and "insofar as each month's total, aggregate credit card charges do not exceed the 75% of Post-Tax Income described above for that month provided that the credit card charges are paid for in full using the 75% of Post-Tax Income described above and that Mattera provides a copy of each credit card statement to [the SEC] within three business days of receiving it." (Id. § VI(4).)

The Consent Order also imposed several disclosure obligations on Mattera. It required Mattera to provide to the SEC "the amounts, dates, and descriptions of the moneys earned by him, released to him, charged and credited to his credit cards, and paid into the CRIS Account." (Id. § VI(5).) Mattera was directed to provide this information to the SEC in a "sworn accounting" on the "fifth calendar day of each month." (Id.)

Thus, the Consent Order prohibited John Mattera from incurring debt in an amount greater than 75% of his Post-Tax Income as defined in Section VI, unless incurred for the purpose of traveling to New York for required court appearances. To the extent that John Mattera earned Post-Tax Income or incurred debt, the Consent Order required him to provide documentation to the SEC on the fifth calendar day of each month.

On December 1, 2011, the Court granted the SEC's application for an Order Granting Preliminary Injunction, Freezing Assets, and Granting Other Relief against the "non-opposing" defendants, including Ann Mattera (the "PI Order"). (Docket # 28; Willenken Decl. Ex. A at A25-- A34.) The PI Order directed Ann Mattera to hold and retain within her control, and otherwise prevent "any withdrawal, transfer, pledge, encumbrance, assignment, dissipation, concealment or other disposal" of assets, including money and personal property, whether "held in her name or for her direct or indirect beneficial interest," up to "the amount of potential ill-gotten gains that Ann Mattera received from" the defendants. (Id. § VI.) The PI Order also prohibited Ann Mattera from incurring debt, including credit card debt, "in excess of $1,000." (Id.) Unlike the Consent Order entered into between the SEC and John Mattera, the PI Order contained no provisions excluding from the asset freeze any money or income earned by Ann Mattera after entry of the PI Order. (Id.)

The PI Order also contained disclosure requirements for the "Non-Opposing Defendants and, "in the case of Ann Mattera, . . . Ann Mattera." (Id. § VIII.) Along with the non-opposing defendants, Ann Mattera was ordered to provide to the SEC a "list of all accounts at all banks, brokerage firms or financial institutions" maintained by Ann Mattera at any time from January 1, 2010, and a list of "money, property, assets, and other income received by [Ann Mattera], in or at any time from January 1, 2010 to the date of the accounting, describing the source, amount, disposition, and current location of each of the items listed." (Id. § VIII(1)--(3).)

In its Complaint, the SEC alleged that Ann Mattera had received more than $2 million in investor funds as part of to the defendants' fraudulent scheme. (Compl. ¶¶ 89, 123-- 25.) Along with its Complaint, the SEC submitted to the Court an affidavit "identif[ying] payments of at least $1.9 million to an account in the name of Ann Mattera." (Needham Decl. ¶ 154.) A statement for Ann Mattera's E*TRADE account, as of October 31, 2011, showed securities of a value of $2,759,747 and a margin obligation of $1,627,228, for a net account value of $1,132,517. (Willenken Decl. Ex. G.)

Because Ann Mattera did not possess sufficient assets to pay a potential disgorgement judgment of an amount approximating $1.9 million following entry of the PI Order, all of Ann Mattera's assets were covered by the asset freeze provisions of the PI Order as detailed in Section VI therein. Thus, I find that the PI Order prohibited Ann Mattera from incurring more than $1,000 in debt, and required her to provide to the SEC a verified written accounting of the information described in Section VIII of the PI Order.

b. The SEC's Motion to Hold the Mattera Defendants in Civil Contempt

On May 22, 2012, the SEC filed an Order to Show Cause Why Defendant John A. Mattera and Relief Defendant Ann A. Mattera Should Not Be Held in Contempt of Court (the "Contempt Motion"). (Docket # 77.) The SEC alleged in its Contempt Motion that the Mattera Defendants had violated the asset freeze and discovery provisions of the TRO, the Consent Order, and the PI Order as described above. (Id. at 1--4.)

On May 29, 2012, John Mattera and Ann Mattera appeared before this Court on the SEC's contempt motion. The Court set a hearing date on the contempt motion for June 5, 2012. The SEC offered certain declarations and exhibits at the June 5 hearing, which were received into evidence without objection. (June 5, 2012 Hr'g Tr. at 6--7.)*fn1 After John Mattera swore in open Court to the truth of its contents, the Court admitted into evidence, over the objection of the SEC, a letter titled "Response of John Mattera" dated May 29, 2012. (Id. at 7:23--8:22.) Neither side having any other evidence to offer, the Court closed the evidentiary record and directed the SEC to submit its proposed findings of fact and conclusions of law by June 18, 2012, with any response by John Mattera due June 25, 2012. (Id. at 11, 17:5--18:4.)

The SEC filed its Proposed Findings of Fact and Conclusions of Law on June 18, 2012. (Docket # 90.) On June 19, the Court issued an Order extending the Mattera Defendants' time to respond from June 25 to July 6, 2012 and directing the Mattera Defendants as to the form of any such response. (Docket # 91.) The Court's June 19, 2012 Order was served on all defendants and relief defendants on June 21, 2012. (Docket # 92.) On July 5, 2012, the Court issued an Order further extending the Mattera Defendants' time to respond to the SEC's submissions to July 17, 2012 and extending the SEC's time to reply to July 24, 2012. (Docket # 93.)

On July 12, 2012, the SEC submitted an application to reopen the evidentiary hearing. (Docket # 94.) The Court set the hearing for August 2, 2012, and ordered all written submissions by either side to be received by July 27, 2012. (Docket # 99.) The Court held an evidentiary hearing on August 2, 2012, at which neither of the Mattera Defendants appeared. The Court continued the evidentiary hearing to September 17, 2012, and directed the SEC to submit its additional bases for contempt by September 7, 2012. John Mattera submitted a written response to the SEC's contempt allegations on Augyst 17, 2012. The SEC served upon the Mattera Defendants both a subpoena to appear and testify at the hearing scheduled for September 17, 2012, and a written summary of the evidence and exhibits it intended to offer at the hearing. (Docket # 104, 105.) The Court concluded the evidentiary hearing on September 17, 2012, at which neither of the Mattera Defendants appeared or offered evidence.

II. Findings of Civil Contempt as to Defendant John Mattera

a. John Mattera Violated the Consent Order by Selling a Lamborghini and Transferring the Proceeds to Ann Mattera

At a deposition, John Mattera admitted that following entry of the TRO, Consent Order, and PI Order, he sold a Lamborghini automobile in exchange for a $28,000 check from College Auto Sales of Florida, Inc., an automobile salvage company. The check was payable to John Mattera and dated December 29, 2011. (Willenken Second Supp. Decl. Ex. 28 at 3 & Ex. 3 ("Mattera Dep.") at 81.) On January 18, 2012, Mattera presented the check to Wells Fargo Bank and received a cashier's check in the amount of $28,000, which was payable to him and dated on or about January 18, 2012. (Willenken Second Supp. Decl. Ex. 28 at 2--3; Mattera Dep. at 78:2-- 78:16.) Mattera then endorsed the cashier's check to Ann Mattera. Mattera testified that he instructed Ann Mattera to "hold it" and "just put it away because it doesn't belong to us." (Id. at 81:12--81:25.) However, on January 19, 2012-the very next day-Ann Mattera deposited the cashier's check into an account held in her name at Iberia Bank. (Willenken Decl. Ex. L at L15.)

The Court does not find credible Mattera's testimony that he never intended for Ann Mattera to deposit the cashier's check. (Mattera Dep. at 78:5--82:18.) As described in greater detail below, Mattera testified to running all "family obligations" through Ann Mattera's bank and credit card accounts in order to pay Mattera's expenses. (Id. at 52:25--56:13, 85:8-- 85:18, 120:25--22:3.) The Court finds by clear and convincing evidence that Mattera endorsed the cashier's check to Ann Mattera for the purpose of having her deposit the funds and have those funds be available to him for future use.

Accordingly, the Court finds by clear and convincing evidence that John Mattera violated the Consent Order by selling a Lamborghini automobile for $28,000 and transferring the proceeds to Ann Mattera to deposit and, thereafter, spend on his behalf.

b. John Mattera Violated the Consent Order by Incurring Debt in an Amount Greater than Seventy-Five Percent of His Post-Tax Income

On December 1, 2012, John Mattera issued a promissory note to Lisa Yigit in the amount of $9,000. (Willenken Second Supp. Decl. Ex. 34.) Mattera testified in his deposition that he issued the note to Yigit after she provided him with $9,000 with which to pay various expenses. (Mattera Dep. at 131:17--131:22.) Also following entry of the Consent Order, John Mattera issued promissory notes to Manish and Shailesh Gupta totaling $100,000. (Willenken Second Supp. Decl. Ex. 32.) The promissory notes called for repayment beginning one year from the date of each note. (Id. at 1--6; Mattera Dep. at 114:20--115:6.) Mattera admitted ...


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