Securities and Exchange Commission v. Loomis et al

Filing 125

FINAL JUDGMENT signed by Judge Kimberly J. Mueller on 1/20/15 against Lawrence Lee Loomis. (Meuleman, A)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

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Civ. No. S-10-458 KJM KJN

ORDER
v.
LAWRENCE “LEE” LOOMIS,
Defendant.

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The Securities and Exchange Commission (SEC) has filed a proposed judgment

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against defendant Lawrence “Lee” Loomis (Loomis) and Loomis has filed objections.

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I. BACKGROUND

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On February 23, 2010, the SEC filed a complaint against Loomis, Loomis Wealth

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Solutions (LWS), LLC, John Hagener, and Lismar Financial Services, LLC (defendants), alleging

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the defendants had misappropriated approximately $10 million from investors through the

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fraudulent sale of interests in the Naras Funds. ECF No. 1 ¶ 1. The complaint is comprised of

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six claims: (1) violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange

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Act), 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5 against all defendants; (2)

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violations of Section 17(a)(1) of the Securities Act of 1933 (Securities Act), 15 U.S.C. § 77q(a)

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against all defendants; (3) violations of Sections 17(a)(2) and (3) of the Securities Act, 15 U.S.C.
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§ 77q(a)(2) against all defendants; (4) violations of Sections 5(a) and 5(c) of the Securities Act,

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15 U.S.C. §§ 77e(a) and 77e (c) against all defendants; (5) violations of Section 206(1) and

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206(2) of the Advisers Act, 15 U.S.C. § 80b-6(1), -(6)(2), against Hagener and Lismar; and (6)

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violations of Section 206(4) of the Advisers Act, 15 U.S.C. § 80b-6(4) against Hagener and

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Lismar. ECF No. 1.

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On February 13, 2013, the SEC filed a motion for summary judgment against

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Loomis and Hagener, alleging that Loomis had violated the following provisions of the securities

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laws: (1) Section 10(b) and Rule 10b-5 of the Exchange Act and Section 17(a)(1) of the

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Securities Act by knowingly or recklessly making material misstatements and omissions to the

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investors in Naras Secured Funds, LLC (Naras Fund 1) and Naras Secured Fund #2 (Naras Fund

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2) and by knowingly or recklessly engaging in a fraudulent scheme; (2) Sections 17(a)(2) and (3)

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of the Securities Act by negligently making material misstatements and omissions to the Naras

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Funds 1 and 2 investors and by negligently engaging in a fraudulent scheme; and (3) Sections

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5(a) and 5(c) of the Securities Act by offering and selling Naras Fund 1 securities and Naras Fund

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2 securities in interstate commerce without first registering the offers and sales with the SEC and

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without having an exemption from registration. ECF No. 64 at 2. The motion raised additional

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claims against Hagener.

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On March 6, 2013, the SEC and Hagener submitted a stipulation for an injunction,

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and on March 13, 2013, the SEC filed a notice that Hagener’s consent to the injunction resolved

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the summary judgment motion as to him. ECF Nos. 69, 71. The court issued the order of

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injunction as to Hagener on April 15, 2013. ECF No. 82.

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After Loomis filed his opposition to the summary judgment motion, he sought a

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stay of the motion. ECF Nos. 86, 88. The court denied the requested stay without prejudice.

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ECF No. 96.

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On September 3, 2013, the court granted the SEC’s motion for summary judgment

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on the following grounds: (1) Loomis violated Rule 10b-5 and Section 17(a)(1) by informing

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investors that the Naras loan funds were secured by second mortgages and that the investments

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were highly liquid and had a twelve percent rate of return; (2) Loomis engaged in a scheme to
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defraud in violation of Rule 10b-5, subparts (a) and (c), and Section 17(a), subparts (1) and (3),

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by misrepresenting the solvency of the Naras Funds while accepting money from new investors to

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use as payments to older investors; and (3) Loomis violated Sections 5(a) and 5(c) of the

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Securities Act by offering unregistered securities for sale. ECF No. 97.

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On March 11, 2014, the SEC filed a motion for remedies against Loomis. ECF

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No. 108. Defendant’s untimely opposition was filed on April 3, and the SEC’s reply was filed on

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April 4, 2013. ECF Nos. 112, 113.

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On April 24, 2014, this court granted the SEC’s request for a permanent injunction
against Loomis and disgorgement of the gains from the scheme, but declined to impose civil

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penalties. It directed the SEC to submit a proposed judgment including language for the

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injunction and showing how much of the money raised from investors in the schemes was

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returned to other investors as “lulling” payments. Order, ECF No. 115.

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SEC submitted a proposed order on May 1, 2014. ECF No. 116. On May 2,

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Loomis objected to the order, arguing it does not reflect all payments back to investors, because

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some of the investors were also NARAS employees whose salary derived from NARAS funds.

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ECF No. 118. Loomis also argues it would be unseemly to direct him to repay co-conspirators

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who will be testifying against him in the criminal trial. Id. However, the proposed final

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judgment does not direct payments to investors, but rather suggests the SEC will propose a plan

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to distribute the fund. “‘Disgorgement is designed to deprive a wrongdoer of unjust enrichment,

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and to deter others from violating securities laws by making violations unprofitable.’” SEC v.

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Platform Wireless Int’l Corp., 617 F.3d 1072, 1096 (9th Cir. 2010) (quoting SEC v. First Pac.

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Bancorp., 142 F.3d 1186, 1191 (9th Cir. 1998)). Although “disgorged monies should not

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necessarily flow to the United States Treasury,” it is “not restitution, either, meaning that it need

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not compensate investors.” SEC v. Bhagat, No. 01-21073, 2008 WL 4890890, at *1 (N.D. Cal.

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Nov. 12, 2008). Accordingly, as part of its equitable powers, the district court has “‘broad

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discretion in approving a proposed plan of distribution of such funds.’” SEC v. Drexel Burnham

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Lambert, Inc., 956 F. Supp. 503, 507 (S.D.N.Y. 1997) (quoting SEC v. Levine, 689 F. Supp. 317,

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320 (S.D.N.Y. 1988), rev’d on other grounds, 881 F.2d 1165 (2d Cir. 1989)). As part of this
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court’s judgment, the SEC will be required to submit a plan of distribution, justifying any

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disgorgement to co-conspirators.

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II. FINAL JUDGMENT AGAINST LAWRENCE “LEE” LOOMIS

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Plaintiff SEC has filed its motion for remedies against defendant Loomis. The

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court, having entered an order on September 3, 2013, granting the SEC’s motion for summary

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judgment, hereby enters this final judgment against Loomis:

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IT IS HEREBY ORDERED, ADJUDGED AND DECREED that Loomis and his

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agents, servants, employees, attorneys-in-fact, and all persons in active concert or participation

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with any of them, who receive actual notice of this Order of Injunction, by personal service or

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otherwise, and each of them, are permanently enjoined and restrained from violating, directly or

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indirectly, Section 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, 17 C.F.R. § 240.10b-5, by using any means or instrumentality of

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interstate commerce, or of the mails, or of any facility of any national securities exchange, in

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connection with the purchase or sale of 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 material fact

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necessary in order to make the statements made, in the light of the circumstances under

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which they were made, not misleading; or

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(c) to engage in any act, practice, or course of business which operates or would operate

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as a fraud or deceit upon any person.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that

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Loomis and his agents, servants, employees, attorneys-in-fact, and all persons in active concert or

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participation with any of them, who receive actual notice of this Order of Injunction, by personal

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service or otherwise, and each of them, are permanently enjoined and restrained from violating

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Section 17(a) of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. § 77q(a), in the offer

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

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

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(a) employing any device, scheme, or artifice to defraud;

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(b) obtaining money or property by means of any untrue statement of a material fact or

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

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the circumstances under which they were made, not misleading; or

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(c) engaging in any transaction, practice, or course of business which operates or would

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operate as a fraud or deceit upon the purchaser.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED AND DECREED that

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Loomis and his agents, servants, employees, attorneys-in-fact, and all persons in active concert or

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participation with any of them, who receive actual notice of this Order of Injunction, by personal

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service or otherwise, and each of them, are permanently enjoined and restrained from violating

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Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) & 77e(c), by, directly or

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indirectly, in the absence of any applicable exemption, making use of any means or instruments

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of transportation or communication in interstate commerce or of the mails:

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(a) to sell a security through the use or medium of any prospectus or otherwise, unless a

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registration statement is in effect as to the security; or

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(b) to offer to sell or offer to buy through the use or medium of any prospectus or

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

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Commission as to such security.

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IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Loomis is

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liable for disgorgement of profits gained as a result of the violations found in the court’s summary

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judgment decision, together with prejudgment interest thereon. The principal amount of

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disgorgement is $10, 288,760.00, plus prejudgment interest of $2,202,734.00, for a total

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disgorgement of $12,491,494.00. Loomis shall satisfy this obligation by paying the total amount

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of $12,491,494.00 to the SEC within thirty days after the entry of this final judgment.

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Loomis may transmit payment electronically to the SEC, which will provide

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detailed ACH transfer/Fedwire instructions upon request. Payment may also be made from a

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bank account via Pay.gov through the SEC website at http://www.sec.gov/about/offices/ofm.htm.

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Defendant may also pay by certified check, bank cashier’s check, or United States postal money

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

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Enterprise Services Center
Accounts Receivable Branch
6500 South MacArthur Boulevard
Oklahoma City, OK 73169

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

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this court; Lawrence “Lee” Loomis as a defendant in this action; and specifying that payment is

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made in accordance with this Final Judgment.

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The SEC may enforce this judgment by moving for civil contempt (and/or through

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other collection procedures authorized by law) at any time after thirty days following the entry of

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judgment. Defendant shall pay post-judgment interest on any delinquent amounts under 28

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U.S.C. § 1961. The SEC shall hold the funds, together with any interest and income earned on

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them (collectively, the Fund), pending further order of the court.

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The SEC shall propose a plan to distribute the Fund subject to the court’s approval.

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The court shall retain jurisdiction over the administration of the distribution of the Fund. If the

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SEC staff determines the Fund will not be distributed, it shall notify the court, explain why the

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Fund is not being paid to the investors, and then send the money paid in satisfaction of this

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judgment to the United States Treasury.

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IT IS HEREBY FURTHER ORDERED, ADJUDGED AND DECREEED that

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this court shall retain jurisdiction over this matter for all purposes, including but not limited to,

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enforcing the terms of this judgment.

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IT IS FURTHER ORDERED that the SEC shall notify this court within one year

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of the date of this judgment whether defendant has made any payments in satisfaction of this

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judgment and, if not, whether collection efforts have been or will be pursued.

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IT IS FINALLY ORDERED that the Clerk enter this judgment.
DATED: January 20, 2015.

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UNITED STATES DISTRICT JUDGE

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