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Securities and Exchange Commission v. Watermark Financial Services Group, Inc.

United States District Court, Second Circuit

May 1, 2013

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
WATERMARK FINANCIAL SERVICES GROUP, INC., WATERMARK M-ONE HOLDINGS, INC., M-ONE FINANCIAL SERVICES, LLC, WATERMARK CAPITAL GROUP, LLC, GUY W. GANE, JR., LORENZO ALTADONNA, THOMAS BRICK, and DEBORAH GALAS, Defendants, and GUY W. GANE, III, JENNA GANE, DENKON, INC., and KONSTANTINOS SAMOUILIDIS, Relief Defendants.

ORDER CREATING A FAIR FUND, APPOINTING DISTRIBUTION AGENT AND ADOPTING DISTRIBUTION PLAN

WILLIAM M. SKRETNY, District Judge.

WHEREAS, the Court has entered the following judgments and orders requiring payments to the Court's Registry Fund:

1. Order Fixing Amount of Disgorgement and Prejudgment Interest as to Defendant Lorenzo Altadonna, entered April 4, 2011 (Dkt. 196), ordering Altadonna to pay disgorgement of $1, 866, 867.90, plus prejudgment interest of $205, 486.37, for a total of $2, 072, 354.27;
2. Final Judgment as to Defendants Guy W. Gane, Jr., Watermark Financial Services Group, Inc., Watermark M-One Holdings, Inc., M-One Financial Services, LLC, and Watermark Capital Group, LLC, entered February 16, 2012 (Dkt. 202), ordering Gane and the Watermark entities to be jointly and severally liable, along with Thomas Brick and Deborah Galas, for disgorgement of $5, 835, 425.70, reduced by payments made by other parties, for a total of $5, 299, 478.21, plus prejudgment interest of $788, 979.68, for a total amount of $6, 088, 457.89;
3. Order Fixing Amount of Disgorgement and Prejudgment Interest as to Defendants Thomas Brick and Deborah Galas, entered February 16, 2012 (Dkt. 203), ordered that Brick and Galas are jointly and severally liable with the other defendants for disgorgement of $5, 835, 425.70, reduced by payments made by other parties, for a total of $5, 299, 478.21, together with prejudgment interest of $788, 979.68, for a total of $6, 088, 457.89, and that Brick and Galas each pay civil penalties of $100, 000; and
4. Final Judgment as to Relief Defendants Konstantinos Samouilidis and Denkon Inc., entered February 16, 2012 (Dkt. 204), ordering that Samouilidis and Denkon are jointly and severally liable for disgorgement of $972, 000, reduced by the amount previously paid, $482, 545.17, for a total of $489, 454.83, plus prejudgment interest of $67, 184.29.

WHEREAS, pursuant to the aforementioned orders and judgments, as of April 11, 2013, the Court's Registry Fund in the Action contains $540, 299.30; and

WHEREAS, the Court, having reviewed this Order Creating a Fair Fund, Appointing Distribution Agent and Adopting Distribution Plan, and upon all prior proceedings and submissions, and for good cause shown,

IT IS HEREBY ORDERED THAT, the Commission's Motion for an Order Creating a Fair Fund, Appointing a Distribution Agent, and Adopting a Distribution Plan (Docket No. 233) is GRANTED.

IT IS FURHER ORDERED THAT:

1. The Watermark Fair Fund ("Fair Fund") is hereby established pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended. The Watermark Fair Fund shall consist of all funds deposited into the Court Registry in connection with this action, inclusive of interest. The Watermark Fair Fund may also include funds received from any proceeding brought by the United States Attorney's Office relating to conduct arising from the same violations alleged in this action.

2. The Distribution Plan of the Fair Fund, set forth below, is hereby APPROVED.

3. David Stoelting, of the Enforcement Division of the Securities and Exchange Commission's New York Regional Office, is hereby APPOINTED as the Distribution Agent for the Fair Fund under this Distribution Plan.

DISTRIBUTION PLAN OF THE WATERMARK FAIR FUND

I. Overview

The Plan seeks to achieve the prompt, fair, and efficient allocation of the Fair Fund to those injured investors that suffered a loss as a result of their investment with Watermark Financial Services Group, Inc., Watermark M-One Holdings, Inc., M-One Financial Services, LLC, and/or Watermark Capital Group, LLC ("Watermark Entities"). An investor who has received back all of his or her initial investment is not entitled to any distribution under this Plan.

The Fair Fund includes all of the funds in the Registry Fund account established in this action and any other amounts that may be subsequently paid into that account, including the disgorgement, prejudgment interest, and civil penalty paid by the defendants, and any interest earned on such amounts.

The Distribution Agent has identified the injured investors based on the Commission's review and analysis of the records of the Watermark Entities. The Distribution Agent will notify the injured investors that they may be entitled to a recovery from the Watermark Fair Fund and the amount of their total loss. An injured investor so notified who agrees with the amount of the loss does not have to do anything else in order to become eligible to recover from the Watermark Fair Fund. Those investors not satisfied with the determination, whether as to the amount of the recovery or as to their right to recover at all, or those investors who are not notified by the Distribution Agent that they may be entitled to participate in the distribution, will have the option of submitting a Proof of Claim Form. After evaluating all claims received, the Distribution Agent will make a final determination concerning investors entitled to recover from the Watermark Fair Fund and will provide the Court a report of its findings, including a list of investors entitled to recovery[1] and the portion of the funds that they will receive in the form of a check. The Distribution Agent will then request that the Court authorize the Clerk of the Court to prepare checks in the amounts determined by the Distribution Agent, and to mail those checks to the injured investors.

II. Definitions

The following definitions shall apply to this Distribution Plan:

"Action" means the matter captioned Securities and Exchange Commission v. Watermark Financial Services Group, Inc., et al., 08 CV 361(S) (W.D.N.Y.).

"Approved Claim" means the final amount of an Eligible Claimant's claim that is ultimately approved pursuant to the Distribution Plan.

"Available Distribution" means the Fair Fund, less any amounts expended or to be expended for administering the Fair Fund (e.g., reasonable fees and expenses incurred or to be incurred in administering the Distribution Plan and the payment of taxes on the Fair Fund).

"Claims Packet" means all the materials to be provided to Pre-Qualified Claimants, and to Potentially Eligible Claimants who request such, including a copy of the Distribution Plan Notice and Proof of Claim Form (together with instructions for completion of Proof of Claim Form).

"Claims Bar Date" means the date established in accordance with the Distribution Plan by which a Potentially Eligible Claimant must file a Proof of Claim Form to avoid the barring of any right of Potentially Eligible Claimants to participate in any distribution from the Fair Fund. It is also the date established in accordance with the Distribution Plan by which a Pre-Qualified Claimant may file a request for review of the determination of the investor's eligibility to participate in any distribution from the Fair Fund and/or the amount of the investor's Eligible Loss. The Claims Bar Date shall be no later than 90 days after the date of entry of an order approving the Distribution Plan.

"Claim Deficiency Notice" means the notice sent by the Distribution Agent to a Potentially Eligible Claimant or to a Pre-Qualified Claimant whose claim is deficient in one or more ways such as, for example, failure to provide required information or documentation. The Claim Deficiency Notice shall advise the claimant of the reason or reasons for the deficiency and the opportunity to cure such deficiency. A Claim Deficiency Notice shall be provided no later than 90 days after the Claims Bar Date.

"Court" means the United States District Court for the Western District of New York.

"Covered Period" means the period of time commencing on January 1, 2005 and ...


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