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Securities and Exchange Commission v. Howard

United States District Court, N.D. Texas, Dallas Division

February 20, 2018

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
PATRICK O. HOWARD, HOWARD CAPITAL HOLDINGS, LLC, AND OPTIMAL ECONOMICS CAPITAL PARTNERS, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          Sam A. Lindsay, United States District Judge

         Before the court are the Receiver's Motion to Show Cause (Doc. 56), filed April 19, 2017; Defendant Patrick O. Howard's Motion to Strike Receiver's Omnibus Response (Doc. 85), filed June 9, 2017; Defendant Patrick O. Howard's Motion for Expedited Discovery (Doc. 90), filed June 16, 2017; and Defendant Patrick O. Howard's Motion to Seal (Doc. 91), filed June 20, 2017. Having carefully considered the motions, responses, replies, legal briefs, appendixes, evidence, record, and applicable law, the court grants in part and denies in part the Receiver's Motion to Show Cause (Doc. 56); denies Defendant Patrick O. Howard's Motion to Strike Receiver's Omnibus Response (Doc. 85); denies as moot Defendant Patrick O. Howard's Motion for Expedited Discovery (Doc. 90); and denies Defendant Patrick O. Howard's Motion to Seal (Doc. 91).

         I. Background

         On February 14, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint against Patrick O. Howard (“Howard”), Howard Capital Holdings, LLC (“HCH”), and Optimal Economics Capital Partners, LLC (“OE Capital”) (collectively, “Defendants”), alleging they operated an unlawful Ponzi scheme and defrauded at least 119 investors of approximately $13.1 million in a succession of fraudulent securities offerings.[1] The SEC alleged that Defendants violated sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)], section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78j(b) and 78o(a)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5] (violations of sections 5(a), 5(c), 10(b) and 17(a) of the Securities Act). In addition, the SEC filed an ex parte motion seeking an order appointing a receiver, a temporary restraining order, an asset freeze, and other emergency and ancillary relief. See Pl.'s Mot. for Prelim. Inj., Ex Parte TRO, Asset Freeze, Appointment of a Receiver and Other Emergency and Ancillary Relief (Doc. 5).

         On February 14, 2017, the court entered an Ex Parte Order Granting Temporary Restraining Order, Asset Freeze, and Other Emergency and Ancillary Relief (“TRO”) (Doc. 12), as well as an Order Appointing Receiver (Doc. 10), in which the court found:

[T]he appointment of a receiver in this action is necessary and appropriate for the purposes of marshaling and preserving all assets owned, controlled, or possessed by the Defendants . . . Howard, [HCH], and [OE Capital] (collectively, “Receivership Defendants”), directly or indirectly, including accounts and assets in the name of (1) Insured Liquidity Partners CFG I, LLC, (2) Insured Liquidity Partners CFG II, LLC, and (3) OE Capital Ventures, LLC (collectively, the “Funds” (“Receivership Assets”).

         Order Appointing Receiver 1. The court appointed W. Craig Stokley, Esq., to serve without bond as receiver for the estates of the Receivership Defendants and the Receivership Assets. In addition, the court froze all receivership assets and restrained and enjoined any person or entity with direct or indirect control over any Receivership Assets from “directly or indirectly transferring, setting off, receiving, changing, selling, pledging, assigning, liquidating or otherwise disposing of or withdrawing such assets.” Id. ¶ 3. The court also dismissed all “trustees, directors, officers, managers, employees, investment advisors, accountants, attorneys and other agents of the Receivership Defendants” and further stated that such persons and entities were to have no power or authority with respect to the Receivership Defendants' operations or assets. Id. ¶ 5.

         Section VII of the Order Appointing Receiver, titled “Injunction against Interference with Receiver” provided:

29. The Receivership Defendants and all persons receiving notice of this Order by personal service, facsimile or otherwise, are hereby restrained and enjoined from directly or indirectly taking any action or causing any action to be taken, without the express written agreement of the Receiver, which would:
A. Interfere with the Receiver's efforts to take control, possession, or management of any Receivership Property; such prohibited actions include but are not limited to, using self-help or executing or issuing or causing the execution or issuance of any court attachments, subpoena, replevin, execution, or other process for the purpose of impounding or taking possession of or interfering with or creating or enforcing a lien upon any Receivership Property;
B. Hinder, obstruct or otherwise interfere with the Receiver in the performance of his duties, such prohibited actions include but are not limited to, concealing, destroying, or altering records or information;
C. Dissipate or otherwise diminish the value of any Receivership Property; such prohibited actions include but are not limited to, releasing claims or disposing, transferring, exchanging, assigning, or in any way conveying any Receivership Property, enforcing judgments, assessments or claims against any Receivership Property or any Receivership Defendant, attempting to modify, cancel, terminate, call, extinguish, revoke, or accelerate (the due date), of any lease, loan, mortgage, indebtedness, security agreement, or other agreement executed by any Receivership Defendant or which otherwise affects any Receivership Property; or
D. Interfere with or harass the Receiver, or interfere in any manner with the exclusive jurisdiction of this Court over the Receivership Estate.
30. The Receivership Defendants shall cooperate with and assist the Receiver in the performance of his duties.

Order Appointing Receiver ¶¶ 29, 30.

         Defendants did not contest liability. On March 7, 2017, a judgment and permanent injunction were entered against each Defendant on the SEC's claims. See Doc. 35 (Final Judgment - Howard); Doc. 36 (Final Judgment - OE Capital); Doc. 37 (Final Judgment - HCH).

         On April 19, 2017, the Receiver filed a Motion to Show Cause (Doc. 56), along with a supporting brief and appendix, requesting that the court order Howard, as well as former Director of Business for the Receivership Entities, Dovile Soblinskas (“Soblinskas”), and former employees of the Receivership Entities, Ron Scherer (“Scherer”) and Christine Horne (“Horne”), to show cause as to why they should not be held in contempt for violating the Order Appointing Receiver. In support, the Receiver contends Soblinskas, Howard, Scherer, and Horne, directly or indirectly, took actions and caused actions to be taken, not only without the express written agreement of the Receiver but in some instances against the express direction of the Receiver, which hindered, obstructed, and otherwise interfered with the Receiver in violation of the Injunction against Interference with Receiver contained in the Order Appointing Receiver. The Receiver requests that, once the court determines that Respondents have failed to show cause why they should not be held in contempt, it should:

1. Enter an Order holding Soblinskas, Howard, Scherer, and Horne jointly and severally liable for all expenses incurred by the Receivership in addressing the aforementioned conduct and, accordingly, order Soblinskas, Howard, Scherer, and Horne to jointly and severally pay directly to the Receivership the amount equal to the amount of expense the Receivership has incurred addressing the conduct described herein.
2. Order Soblinskas, after notice and hearing, to be placed in custody of the United States Marshal Service until such time as, in the determination of the Court, she has purged her contempt, or alternatively, instruct Soblinskas that should she violate the orders in the future, she will be placed in custody until she has purged her contempt.
3. Order Howard, after notice and hearing, to be placed in custody of the United States Marshal Service until such time as, in the determination of the Court, he has purged his contempt, or alternatively, instruct Howard that should he violate the orders in the ...

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