Securities and Exchange Commission v. Harrison Schumacher et al

Filing 78

FINAL JUDGMENT AND PERMANENT INJUNCTION AS TO DEFENDANTS HARRISON SCHUMACHER, QUANECO, LLC, QUANTUM ENERGY, LLC; AND RELIEF DEFENDANTS QUANECO ENERGY HOLDINGS, LLC, FAT CHANCE OIL & GAS, LLC, AND ANV, LLC 77 by Judge Dean D. Pregerson: Defendants permanently restrained and enjoined from violating Exchange Act (SEE DOCUMENT FOR SPECIFICS). Schumacher, Fat Chance, and ANV are jointly and severally liable for disgorgement of $244,000, representing profits gained as a result of the conduct a lleged in the Complaint, together with prejudgment interest thereon in the amount of $8,457.86, for a total of $252,457.86. Quantum, Quaneco, and QEH are jointly and severally liable for disgorgement of $12,470,272.00, representing p rofits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $474,286.20, for a total of $12,944,558.20. (SEE DOCUMENT FOR OTHER DETAILED SPECIFIC AS TO INSTRUCTIONS, DEADLINES AND OTHER REQUIREMENTS). (MD JS-6, Case Terminated). (lc)FC

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JS-6

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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WESTERN DIVISION

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SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

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Case No. 2:15-6388-DDP (RAOx)

FINAL JUDGMENT AS TO
DEFENDANTS HARRISON
SCHUMACHER, QUANECO, LLC,
QUANTUM ENERGY, LLC; AND
RELIEF DEFENDANTS QUANECO
ENERGY HOLDINGS, LLC,
FAT CHANCE OIL & GAS, LLC,
AND ANV, LLC

vs.
HARRISON SCHUMACHER; PAUL
MYSYK; QUANECO, LLC; and
QUANTUM ENERGY, LLC,
Defendants, and
QUANECO ENERGY HOLDINGS,
LLC; FAT CHANCE OIL & GAS,
LLC; and ANV, LLC, and TARA
SCHUMACHER,
Relief Defendants.

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The Securities and Exchange Commission (“SEC” or “Commission”) having

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filed a Complaint, and Defendants Harrison Schumacher (“Schumacher”), Quaneco,

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LLC (“Quaneco”), and Quantum Energy, LLC (“Quantum”) (collectively,

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“Defendants”); and Relief Defendants Quaneco Energy Holdings, LLC (“QEH”), Fat

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Chance Oil & Gas, LLC (“Fat Chance”), and ANV, LLC (“ANV”) (collectively,

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“Relief Defendants”) having entered a general appearance; consented to the Court’s

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jurisdiction over Defendants and Relief Defendants and the subject matter of this

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action; consented to entry of this Final Judgment; waived findings of fact and

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conclusions of law; and waived any right to appeal from this Final Judgment; and

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Defendants having admitted to the facts set forth in Annex A to the Consents of

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Defendants Schumacher, Quaneco, and Quantum, and the Consent of Defendants

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Schumacher, Quantum, and Quaneco and Annex A and B attached thereto, and the

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Consents of Relief Defendants QEH, Fat Chance, and ANV being hereby

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incorporated by reference with the same force and effect as if fully set forth herein.
I.

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IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendants

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are permanently restrained and enjoined from violating, directly or indirectly, Section

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10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. §

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78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using

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any means or instrumentality of interstate commerce, or of the mails, or of any

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facility of any national securities exchange, in connection with the purchase or sale of

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any security:

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(a)

to employ any device, scheme, or artifice to defraud;

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(b)

to make any untrue statement of a material fact or to omit to state a

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material fact necessary in order to make the statements made, in the light of the

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circumstances under which they were made, not misleading; or

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(c)

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to engage in any act, practice, or course of business which operates or
operate as a fraud or deceit upon any person.
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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as

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provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also

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binds the following who receive actual notice of this Final Judgment by personal

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service or otherwise: (a) Defendants’ officers, agents, servants, employees, and

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attorneys; and (b) other persons in active concert or participation with Defendants or

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with anyone described in (a).
II.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Defendants are permanently restrained and enjoined from violating Section 17(a) of

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the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)] in the offer or

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sale of any security by the use of any means or instruments of transportation or

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communication in interstate commerce or by use of the mails, directly or indirectly:

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(a)

to employ any device, scheme, or artifice to defraud;

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(b)

to obtain money or property by means of any untrue statement of a

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material fact or any omission of a material fact necessary in order to make the

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statements made, in light of the circumstances under which they were made,

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not misleading; or

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(c)

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to engage in any transaction, practice, or course of business which

operates or would operate as a fraud or deceit upon the purchaser.

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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as

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provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also

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binds the following who receive actual notice of this Final Judgment by personal

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service or otherwise: (a) Defendants’ officers, agents, servants, employees, and

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attorneys; and (b) other persons in active concert or participation with Defendants or

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with anyone described in (a).

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III.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Defendants are permanently restrained and enjoined from violating Section 5 of the

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Securities Act [15 U.S.C. § 77e] by, directly or indirectly, in the absence of any

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applicable exemption:

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(a)

Unless a registration statement is in effect as to a security, making use of

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any means or instruments of transportation or communication in

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interstate commerce or of the mails to sell such security through the use

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or medium of any prospectus or otherwise;

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(b)

Unless a registration statement is in effect as to a security, carrying or

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causing to be carried through the mails or in interstate commerce, by any

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means or instruments of transportation, any such security for the purpose

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of sale or for delivery after sale; or

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(c)

Making use of any means or instruments of transportation or

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communication in interstate commerce or of the mails to offer to sell or

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offer to buy through the use or medium of any prospectus or otherwise

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any security, unless a registration statement has been filed with the

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Commission as to such security, or while the registration statement is the

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subject of a refusal order or stop order or (prior to the effective date of

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the registration statement) any public proceeding or examination under

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Section 8 of the Securities Act [15 U.S.C. § 77h].

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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as

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provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also

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binds the following who receive actual notice of this Final Judgment by personal

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service or otherwise: (a) Defendants’ officers, agents, servants, employees, and

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attorneys; and (b) other persons in active concert or participation with Defendants or

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with anyone described in (a).

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IV.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Schumacher is permanently restrained and enjoined from violating Section 15(a) of

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the Exchange Act [15 U.S.C. § 78o(a)] by, directly or indirectly, made use of the

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mails or means or instrumentalities of interstate commerce to effect transactions in, or

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to induce or attempt to induce, the purchase or sale of securities, without being

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registered as a broker or dealer, or being associated with a registered broker or dealer.

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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as

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provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also

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binds the following who receive actual notice of this Final Judgment by personal

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service or otherwise: (a) Schumacher’s officers, agents, servants, employees, and

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attorneys; and (b) other persons in active concert or participation with Schumacher or

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with anyone described in (a).

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V.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, pursuant

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to Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)] and Section 20(e) of

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the Securities Act [15 U.S.C. § 77t(e)], Schumacher is prohibited from acting as an

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officer or director of any issuer that has a class of securities registered pursuant to

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Section 12 of the Exchange Act [15 U.S.C. § 78l] or that is required to file reports

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pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)].

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VI.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Schumacher is permanently barred from participating in an offering of penny stock,

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including engaging in activities with a broker, dealer, or issuer for purposes of

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issuing, trading, or inducing or attempting to induce the purchase or sale of any penny

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stock. A penny stock is any equity security that has a price of less than five dollars,

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except as provided in Rule 3a51-1 under the Exchange Act [17 C.F.R. 240.3a51-1].

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VII.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Schumacher is prohibited from directly or indirectly, including, but not limited to,

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through any entity owned or controlled by Schumacher, participating in the issuance,

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purchase, offer, or sale of any security, provided, however, that Schumacher is not

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prohibited from purchasing or selling securities listed on a national securities

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exchange for his own personal accounts.

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VIII.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Schumacher, Fat Chance, and ANV are jointly and severally liable for disgorgement

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of $244,000, representing profits gained as a result of the conduct alleged in the

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Complaint, together with prejudgment interest thereon in the amount of $8,457.86,

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for a total of $252,457.86. In addition, Schumacher is liable for a civil penalty in the

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amount of $310,000.00 pursuant to Section 21(d) of the Exchange Act [15 U.S.C. §

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78u(d)] and Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)]. Schumacher,

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Fat Chance, and ANV shall satisfy their respective obligations by paying the

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Securities and Exchange Commission (including, but not limited to, the transfer of all

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funds held in accounts owned or controlled by Schumacher, Fat Chance, and ANV

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with Wells Fargo Bank, N.A.) within 364 days after entry of this Final Judgment.

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IX.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Quantum, Quaneco, and QEH are jointly and severally liable for disgorgement of

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$12,470,272.00, representing profits gained as a result of the conduct alleged in the

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Complaint, together with prejudgment interest thereon in the amount of $474,286.20,

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for a total of $12,944,558.20, but that this amount shall be deemed satisfied upon (1)

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the transfer of any and all of Quantum’s, Quaneco’s and QEH’s funds (including, but

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not limited to, funds in accounts owned or controlled by Quantum, Quaneco, and

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QEH with Wells Fargo Bank, N.A.) to the Court for potential distribution; and (2) the
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execution of documents that convey all of Quantum’s and QEH’s other assets,

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whether real or personal, choate or inchoate, to Quaneco.
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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, within

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seven days of the entry of this Final Judgment, Schumacher will execute a document

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suitable to the SEC to convey to the SEC his interest in the art work identified in

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Annex B to the Consent of Harrison Schumacher (the “Art Work”). The proceeds of

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the sale of the Art Work will be applied dollar-for-dollar to satisfy Schumacher’s

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obligations pursuant to Paragraph VIII of this Final Judgment.
XI.

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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that

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Schumacher’s Consent is incorporated herein with the same force and effect as if

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fully set forth herein, and that Schumacher shall comply with all of the undertakings

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and agreements set forth therein, including, but not limited to, the undertakings to:

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(a)

Within fourteen days of the entry of this Final Judgment, divest

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himself of and transfer to Quaneco any ownership interest he has or claims to have in

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Quantum, Quaneco, the Relief Defendants, Quaneco VI, LP, Big Sky Energy, LLC,

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Powder River Gas, LLC, Quest Operating LLC, and BHJ Gathering, LLC, and any

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related entities, joint ventures, or partnerships (collectively, the “Quantum Entities”)

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including, but not limited to, any ownership interest in bank accounts, mineral leases,

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office equipment, and any other property, real or personal, whether choate or

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inchoate, of the Quantum Entities;

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(b)

Resign any position he holds as President, Manager, or Managing

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Member of each of the Quantum Entities within fourteen days of the Final Judgment

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in this matter; and

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(c)

Execute all necessary documents to documents to cancel any and

all of his interest in the Quantum Entities and, as necessary, execute all documents

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necessary effectuate the transfer of such ownership interest to Quaneco as determined

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by the Securities and Exchange Commission.

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XII.

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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, for

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purposes of exceptions to discharge set forth in Section 523 of the Bankruptcy Code,

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11 U.S.C. §523, the allegations in the complaint are true and admitted by Defendants

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and Relief Defendants, and further, any debt for disgorgement, prejudgment interest,

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civil penalty or other amounts due by Defendants and Relief Defendants under this

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Final Judgment or any other judgment, order, consent order, decree or settlement

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agreement entered in connection with this proceeding, is a debt for the violation by

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Defendants and Relief Defendants of the federal securities laws or any regulation or

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order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy

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Code, 11 U.S.C. §523(a)(19).

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XIII.

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This Court hereby orders that the Court-ordered asset freeze pursuant to

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Paragraph VII of this Court’s December 8, 2015 Preliminary Injunction (DE 45) is

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hereby modified to permit Defendants and Relief Defendants to transfer assets,

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including the Art work and bank accounts held at Wells Fargo, N.A., so that such

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assets may be applied to satisfy this Final Judgment. Upon satisfaction of the

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monetary components set forth in Section IX above, the asset freeze shall be vacated.

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XIV.

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To satisfy the requirements set forth in Sections VIII and IX above, Defendants

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and Relief Defendants may transmit payment electronically to the Commission,

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which will provide detailed ACH transfer/Fedwire instructions upon request.

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Payment may also be made directly from a bank account via Pay.gov through the

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SEC website at http://www.sec.gov/about/offices/ofm.htm. Defendants and Relief

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Defendants may also pay by certified check, bank cashier’s check, or United States

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postal money order payable to the Securities and Exchange Commission, which shall
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be delivered or mailed to

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Enterprise Services Center

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Accounts Receivable Branch

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6500 South MacArthur Boulevard

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Oklahoma City, OK 73169

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and shall be accompanied by a letter identifying the case title, civil action number,

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and name of this Court; the paying party as a defendant or relief defendant in this

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action; and specifying that payment is made pursuant to this Final Judgment.

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Defendants and Relief Defendants shall simultaneously transmit photocopies of

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evidence of payment and case identifying information to the Commission’s counsel

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in this action. By making this payment, Defendants and Relief Defendants relinquish

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all legal and equitable right, title, and interest in such funds and no part of the funds

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shall be returned to them.

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The Commission may enforce the Court’s judgment for disgorgement and

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prejudgment interest against Schumacher, Fat Chance, and ANV by moving for civil

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contempt (and/or through other collection procedures authorized by law) at any time

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after 364 days following entry of this Final Judgment. Schumacher, Fat Chance, and

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ANV shall pay post judgment interest on any delinquent amounts pursuant to 28

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U.S.C. § 1961. The Commission shall hold the funds, together with any interest and

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income earned thereon (collectively, the “Fund”), pending further order of the Court.

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The Commission may propose a plan to distribute the Fund subject to the

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Court’s approval. Such a plan may provide that the Fund shall be distributed

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pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of

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2002. The Court shall retain jurisdiction over the administration of any distribution

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of the Fund. If the Commission staff determines that the Fund will not be distributed,

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the Commission shall send the funds paid pursuant to this Final Judgment to the

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United States Treasury.
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Regardless of whether any such Fair Fund distribution is made, amounts

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ordered to be paid as civil penalties pursuant to this Judgment shall be treated as

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penalties paid to the government for all purposes, including all tax purposes. To

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preserve the deterrent effect of the civil penalty, Schumacher shall not, after offset or

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reduction of any award of compensatory damages in any Related Investor Action

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based on Defendants’ payment of disgorgement in this action, argue that he is entitled

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to, nor shall he further benefit by, offset or reduction of such compensatory damages

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award by the amount of any part of Defendants’ payment of a civil penalty in this

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action (“Penalty Offset”). If the court in any Related Investor Action grants such a

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Penalty Offset, Defendants shall, within 30 days after entry of a final order granting

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the Penalty Offset, notify the Commission’s counsel in this action and pay the amount

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of the Penalty Offset to the United States Treasury or to a Fair Fund, as the

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Commission directs. Such a payment shall not be deemed an additional civil penalty

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and shall not be deemed to change the amount of the civil penalty imposed in this

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Judgment. For purposes of this paragraph, a “Related Investor Action” means a

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private damages action brought against Defendants by or on behalf of one or more

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investors based on substantially the same facts as alleged in the Complaint in this

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action.
XV.

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IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court

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shall retain jurisdiction of this matter for the purposes of enforcing the terms of this

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Final Judgment.

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XVI.

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There being no just reason for delay, pursuant to Rule 54(b) of the Federal

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Rules of Civil Procedure, the Clerk is ordered to enter this Final Judgment forthwith

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and without further notice.

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Dated: _February 21, 2017 _____

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____________________________________

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UNITED STATES DISTRICT JUDGE

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