ELAINE E. BUCKLO, District Judge.
Pursuant to Federal Rule of Civil Procedure 54(b) and the Court's July 28, 2008 order (Docket Entry 95), the Securities and Exchange Commission ("SEC") respectfully moves the Court to: (1) find defendants Mark G. Meyer ("Meyer") and his business Mark Meyer & Associates, Inc. ("Meyer & Associates" or collectively, the "Meyer Defendants") jointly and severally liable for disgorgement of the illegal Universal Lease commissions paid to them in the amount of $1,162,729.13, and for prejudgment interest thereon in the amount of $565,204.12, for a total of $1,727,933.25; (2) impose a civil penalty against Meyer in the amount of $120,000 and against Meyer & Associates in the amount of $600,000; and (3) enter a final judgment against Meyer and Meyer & Associates in the form attached as Exhibit 1, which includes both the disgorgement and civil penalties sought in this motion and the permanent injunctive relief previously ordered against them. In support, the SEC states as follows:
1. This is a securities enforcement action brought by the SEC in response to a massive nationwide fraudulent investment scheme orchestrated by Michael E. Kelly ("Kelly"). As alleged in the complaint, Kelly and those working with him raised more than $428 million from American investors through the fraudulent offer and sale of securities in the form of "Universal Leases." To sell Universal Leases, Kelly used a network of unregistered sales people who could not legally sell these securities (the "Selling Brokers") that he trained and who sold the Universal Lease by simply parroting to investors the false and misleading statements Kelly made to them in training. Kelly paid his Selling Brokers huge commissions that they did not disclose to investors.
2. Among Kelly's top Selling Brokers were Meyer and Meyer & Associates, the entity Meyer used for his Universal Lease business. The complaint alleges that Meyer and Meyer & Associates offered and sold Universal Leases through the use of false and misleading statements, sold these securities without registering with the SEC and when no registration statement for the Universal Lease securities was in effect, failed to disclose the huge commissions Kelly was paying them, recruited others to sell the Universal Leases and pocketed more than $1.15 million in commissions for Universal Lease sales.
3. The SEC seeks a judgment against Meyer and Meyer & Associates that: (a) permanently enjoins and restrains them from violating the charged provision of the federal securities laws (i.e., Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 10b-10 thereunder and, as to Meyer only, from aiding and abetting violations of Rule 10b-10); (b) requires them to disgorge all ill-gotten gains and unjust enrichment realized them from their unlawful conduct, gained directly or indirectly from the conduct alleged in the complaint, together with prejudgment interest thereon; and (c) orders them to pay an appropriate civil money penalty.
4. In response to the complaint, the Meyer Defendants entered into a bifurcated settlement with the SEC in which they consented to the entry of an order of permanent injunction against them prohibiting future violations of the charged provisions of the securities laws. In addition, the Meyer Defendants agreed to procedures for resolving the SEC's remaining claims against them for disgorgement and civil penalties (i.e., for resolving this motion). See Consent of Defendants Mark G. Meyer and Mark Meyer & Associates, Inc., Docket Entry 92-3, at ¶ 3.
5. Specifically, the Meyer Defendants agreed that upon the SEC's motion, the Court would determine whether it is appropriate to order disgorgement of their ill-gotten gains, and whether to impose a civil penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and, if so, the amount(s) of the disgorgement and civil penalty. Id. The Meyer Defendants also agreed that that in connection with the SEC's motion: (a) they would be precluded from arguing that they did not violate the federal securities laws as alleged in the Complaint; (b) they could not challenge the validity of his consent or the order of permanent injunction entered against they; (c) solely for the purposes of this motion, the allegations of the complaint would be accepted as and deemed true by the Court; and (d) the Court may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of sworn deposition or investigative testimony, and documentary evidence, without regard to the standards for summary judgment contained in Rule 56(c) of the Federal Rules of Civil Procedure. Id.
6. The Court included these agreed-upon procedures in the order of permanent injunction previously entered against the Meyer Defendants. See Order of Permanent Injunction
7. The SEC now moves the Court to find the Meyer Defendants jointly and severally liable for disgorgement, prejudgment interest thereon, and to additionally impose a civil penalty against each of them. Pursuant to their consent and the Court's prior order, the Meyer Defendants may not contest that they violated the federal securities laws as alleged in the complaint. The allegations of the complaint, taken as true for purposes of this motion, amply demonstrate that the Meyer Defendants offered and sold Universal Leases in violation of the federal securities laws and profited handsomely as a result. Thus, it is established that they violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rules 10b-5 and 10b-10 thereunder.
8. As discussed more fully in the SEC's memorandum of law submitted in support of this motion, the uncontested facts of the complaint and the relevant law show that the Court should grant this motion.
WHEREFORE, Plaintiff, the United States Securities and Exchange Commission respectfully requests that the Court:
The Securities and Exchange Commission having filed a Complaint and Defendants Mark G. Meyer ("Meyer") and Mark Meyer & Associates, Inc. ("Meyer & Associates") (collectively "Defendants") having entered a general appearance and consented to the Court's jurisdiction over Defendants and the subject matter of this action; and Defendants having previously consented to an Order of Permanent Injunction Against Defendants Mark G. Meyer and Mark Meyer & Associates, Inc. ("Order of Permanent Injunction"); and the SEC having filed a motion seeking the entry of a Final Judgment setting disgorgement, prejudgment interest and civil penalties to be paid by the Defendants and incorporating in the Final Judgment the permanent injunctive relief previously ordered in the Order of Permanent Injunction; and the Court having considered the SEC's motion, the submissions of all parties concerning this motion, and being apprised of the premises; the Court grants the SEC's motion and orders as follows:
IT IS HEREBY ORDERED that Defendants and Defendants' agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 17(a) of the Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77q(a)] in the offer or sale of any security by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly:
IT IS FURTHER ORDERED that Defendants and Defendants' agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating, directly or indirectly, Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of any security:
IT IS FURTHER ORDERED that Defendants and Defendants' agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 5 of the Securities Act [15 U.S.C. § 77e] by, directly or indirectly, in the absence of any applicable exemption:
IT IS FURTHER ORDERED that Defendants and Defendants' agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Rule 10b-10 promulgated under the Exchange Act [17 C.F.R. § 240.10b-10] by effecting for the account of a customer, or inducing the purchase or sale by such customer, of a security without, at or before completion of such transaction, giving or sending to such customer written notice disclosing the source and amount of any other remuneration received or to be received by them in connection with the transaction.
IT IS FURTHER ORDERED that Defendant Meyer and Defendant Meyer's agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from aiding and abetting violations Rule 10b-10 promulgated under the Exchange Act [17 C.F.R. § 240.10b-10] by knowingly providing substantial assistance to any person or entity that is effecting for the account of a customer, or inducing the purchase or sale by such customer, of a security without, at or before completion of such transaction, giving or sending to such customer written notice disclosing the source and amount of any other remuneration received or to be received by them in connection with the transaction.
IT IS FURTHER ORDERED that Defendants and Defendants' agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)] by making use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers acceptances, or commercial bills), without registering with the Commission as a broker or dealer.
IT IS FURTHER ORDERED, that Defendants are liable jointly and severally for disgorgement of $1,162,729.13, representing profits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $565,204.12 for a total of $1,727,933.25. Defendant Meyer is also liable for a civil penalty in the amount of $120,000 and Defendant Meyer & Associates is liable for a civil penalty in the amount of $600,000 pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]. Defendants shall satisfy these obligations by paying these amounts within 14 days after entry of this Final Judgment. The Commission may enforce the Court's judgment for disgorgement and prejudgment interest by moving for civil contempt (and/or through other collection procedures authorized by law) at any time after 14 days following entry of this Final Judgment. In response to any such civil contempt motion by the Commission, the defendant may assert any legally permissible defense.
Payments under this paragraph shall be made to the to the Clerk of this Court, together with a cover letter identifying Meyer and Meyer & Associates as defendants in this action; setting forth the title and civil action number of this action and the name of this Court; and specifying that payment is made pursuant to this Final Judgment. Defendants shall simultaneously transmit photocopies of such payment and letter to the Commission's counsel in this action. By making this payment, Defendants relinquish all legal and equitable right, title, and interest in such funds, and no part of the funds shall be returned to Defendants. Defendants shall pay post-judgment interest on any delinquent amounts pursuant to 28 USC § 1961.
The Clerk shall deposit the funds into an interest bearing account with the Court Registry Investment System ("CRIS") or any other type of interest bearing account that is utilized by the Court. These funds, together with any interest and income earned thereon (collectively, the "Fund"), shall be held in the interest bearing account until further order of the Court. In accordance with 28 U.S.C. § 1914 and the guidelines set by the Director of the Administrative Office of the United States Courts, the Clerk is directed, without further order of this Court, to deduct from the income earned on the money in the Fund a fee equal to ten percent of the income earned on the Fund. Such fee shall not exceed that authorized by the Judicial Conference of the United States.
The Commission may by motion propose a plan to distribute the Fund subject to the Court's approval. Such a plan may provide that the Fund shall be distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil penalties pursuant to this Judgment shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Defendants shall not, after offset or reduction of any award of compensatory damages in any Related Investor Action based on Defendant's payment of disgorgement in this action, argue that they are entitled to, nor shall they further benefit by, offset or reduction of such compensatory damages award by the amount of any part of either Defendant's payment of a civil penalty in this action ("Penalty Offset"). If the court in any Related Investor Action grants such a Penalty Offset, Defendant shall, within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this Judgment. For purposes of this paragraph, a "Related Investor Action" means a private damages action brought against Defendant by or on behalf of one or more investors based on substantially the same facts as alleged in the Complaint in this action.
IT IS FURTHER ORDERED that the Defendants' Consent signed in connection with the Order of Permanent Injunction previously entered in this action are incorporated herein with the same force and effect as if fully set forth herein, and that Defendants shall comply with all of the undertakings and agreements set forth therein.
IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for all purposes, including enforcement of the terms of this Final Judgment.
IT IS FURTHER ORDERED that there being no just reason for delay, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, the Clerk is ordered to enter this Final Judgment forthwith and without further notice.
I, R. Kevin Barrett, declare under penalty of perjury, in accordance with 28 U.S.C. § 1746, as follows:
1. This declaration is submitted in support of the Plaintiff's Motion for Entry of Final Judgment against Defendants Mark G. Meyer and Mark Meyer & Associates, Inc. (the "SEC Motion").
2. Since March 1998, I have been employed as an Accountant in the Division of Enforcement of the Securities and Exchange Commission ("SEC") in its Chicago Regional Office, currently located at 175 West Jackson Boulevard, Suite 900, Chicago, Illinois 60604. My official duties with the SEC include participating in fact-finding inquiries and investigations to determine whether the federal securities laws have been, are presently being, or are about to be violated and assisting in the SEC's civil actions arising from such securities law violations.
3. As part of my official duties, I routinely review, schedule, and summarize bank records, trading records and other financial records typically maintained at all varieties of financial institutions, including banks and brokerage firms, and am intimately familiar with the type of records maintained by such entities. I also participate in interviews with personnel of these entities as well as interviews of other witnesses.
4. I received B.S. and M.S. degrees in Accounting from the University of Illinois and an M.S. degree in Financial Markets & Trading from the Illinois Institute of Technology. I received my certification as a certified public accountant from the state of Illinois in 1976.
5. Prior to my employment with the SEC, I worked in the public accounting profession for three and one-half years and in the securities industry for nearly 17 and one-half years in several capacities, including as a controller at a broker-dealer firm and as a trader on the Chicago Stock Exchange and the Chicago Board Options Exchange.
6. In 2004, I was asked to assist in the Commission's investigation into the Yucatan Investment Corporation, Michael E. Kelly ("Kelly") and other persons and entities working with them. This investigation related to the offer and sale of investments called "Universal Leases."
7. In connection with the SEC's investigation and this civil action, I have reviewed and summarized voluminous records obtained by the SEC from a number of financial institutions. The records obtained by the SEC include, but are not limited to: account opening documents, bank signatory forms, canceled checks, monthly statements, deposits, debit and credit memoranda and wire transfer advices. Included among these voluminous records are thousands of checks reflecting Kelly's payments of sales commissions to the brokers who were selling the Universal Leases to investors (the "Selling Brokers"). I reviewed and summarized the bank records obtained by the SEC to determine the amount of commissions Kelly paid to the Selling Brokers. As set out in the SEC's complaint, Kelly paid the Selling Brokers huge commissions, undisclosed to investors, totaling more than $72 million. See Docket Entry 1, Complaint, ¶ 3.
8. For the SEC Motion, I was asked to determine the amount of disgorgement that should be paid by Mark G. Meyer ("Meyer") and his business, Mark Meyer & Associates, Inc. ("Meyer & Associates" or collectively, the "Meyer Defendants"). As alleged in the SEC's complaint, Meyer conducted his Universal Lease business through Meyer & Associates. Complaint, ¶¶ 11, 31.
9. I calculated the Meyer Defendants' disgorgement by reviewing and scheduling those bank account records obtained by the SEC that reflected Universal Lease commissions paid to the Meyer Defendants. Specifically, I reviewed and scheduled bank records from the following bank accounts from which Kelly paid commissions to the Selling Brokers:
10. I also reviewed records from as account at Comerica Bank in the name of Mark Meyer & Associates, Inc. (account xxxx-xx502-9) into which Meyer deposited his commission checks.
11. Based on my review of these bank records, I prepared a schedule of the Universal Lease commission payments that Kelly made to the Meyer Defendants and that schedule is included at the end of this Declaration as Exhibit A. As shown on Exhibit A, Kelly and his companies paid the Meyer Defendants at least $1,186,839.62 over the period of January 2000 through April 2004.
12. Based on my review of these commission checks, Kelly paid the Meyer Defendants by check made payable to Mark Meyer and addressed to Meyer's home address in Coppell, Texas. These checks included a notation that they were for commissions and the large majority of the commission checks specify the Universal Lease number(s) relating to the commission payment. Meyer endorsed nearly all of these checks, and I was able to trace the vast majority of these deposits into the Meyer & Associates account at Comerica Bank.
13. I did not attempt to allocate the commission payments between Meyer and Meyer & Associates because, as noted in the SEC's complaint, Meyer conducted his Universal Lease business through Meyer & Associates. Complaint, ¶¶ 11, 31. Also, the commission checks were made payable to Meyer individually, but he deposited at least the vast majority of these check into the Meyer & Associates bank account at Comerica Bank. According to my review of the Comerica Bank account records, Meyer was President of Meyer & Associates, a signatory on its account and controlled the disposition of its funds.
14. Based on the bank records obtained during the investigation and this action (including documents obtained from the Meyer Defendants), the SEC is aware that the Meyer Defendants received some of the gross commissions on behalf of other Selling Brokers that Meyer had recruited to sell Universal Leases and that after getting these commissions from Kelly, the Meyer Defendants paid those commissions to the other Selling Brokers. Therefore, to obtain the amount of disgorgement to be paid by the Meyer Defendants, I subtracted the amount they paid to other selling brokers from the gross commissions Kelly paid to the Meyer Defendants. Based on the records in the SEC's possession, the amount of commissions the Meyer Defendants paid to other Selling Brokers was $24,110.49. I prepared a schedule of these payments to other Selling Brokers, which is attached as Exhibit B.
15. Therefore, the total commissions paid to and retained by the Meyer Defendants is $1,162,729.13. See Exhibit A, p. 2. This is the amount of disgorgement owed by the Meyer Defendants.
16. I calculated the amount of prejudgment interest that has accrued on the above disgorgement figure by applying the interest rate, adjusted quarterly, used by the Internal Revenue Service for computation of interest on underpayment of taxes. I calculated prejudgment interest beginning the day after the last Universal Lease commission check paid to the Meyer Defendants cleared the bank through the last day of the most recent month (i.e., the month ended April 30, 2011). This is a conservative calculation of prejudgment interest, as I did not include in my calculation any prejudgment interest accruing on the other commission payments the Meyer Defendants received before this date. Based on this method and using the dates described above, I calculated prejudgment interest from this date to be $565,204.12. A copy of the prejudgment interest calculation is attached as Exhibit C to this declaration.
17. The total amount of disgorgement and prejudgment interest owed by the Meyer Defendants using these calculations is therefore $1,727,933.25. See Exhibit C.
18. I previously filed declarations in this action in support of similar motions filed by the SEC against other Selling Brokers, including defendants John E. Tencza and his business American Elder Group, L.L.C., Carl Lee and his business Carl Lee and Associates, Inc., Richard Riner and his business Southwest Income Marketing, Inc. and George L. Phelps, and the Court entered judgment in each case based on those calculations. See Declarations, Docket Entries 151-1, 160-2, 164-2, 179-2; Final Judgments, Docket Entries 156, 168,172-1, 185. I used the same methodology for calculating disgorgement and prejudgment interest for the Meyer Defendants as I used for these other declarations.
I, R. Kevin Barrett, declare under penalty of perjury that the foregoing is true and correct, and further that this declaration is made on my personal knowledge and that I am competent to testify to the matters stated in this declaration.
Executed on: May 10, 2011.
[table omitted]
The undersigned, an attorney, hereby certifies that on May 16, 2011, I electronically submitted the foregoing PLAINTIFF'S MOTION FOR ENTRY OF FINAL JUDGMENT AGAINST DEFENDANTS MARK G. MEYER AND MARK MEYER & ASSOCIATES, INC. to the Clerk of the Court using the CM/ECF System. Notice of this filing will be sent to the following by operation of the Court's electronic filing system. Parties may access this fling through the Court's system.
In addition, because the following defendants or attorneys have not appeared or are not yet E-filers in this action, I have served them by the method set out below.
