Securities and Exchange Commission v. Mantria Corporation et al

Filing 211

ORDER granting 159 Plaintiff's Motion for Summary Judgment against Mantria. Plaintiff is directed to submit, within 14 days of this Order, a proposed Order of Permanent Injunction against Mantria that conforms to the substance of this Order; T he Court shall retain jurisdiction over this action for all purposes in connection with this matter, including implementation and enforcement of the terms of this Order and to grant such relief as the Court may deem necessary and just. by Judge Christine M. Arguello on 8/5/2011.(erv, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 09-cv-02676-CMA-MJW
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
MANTRIA CORPORATION,
TROY B. WRAGG,
AMANDA E. KNORR,
SPEED OF WEALTH, LLC,
WAYDE M. MCKELVY, and
DONNA M. MCKELVY,
Defendants.

_____________________________________________________________________
ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AGAINST
DEFENDANT MANTRIA CORPORATION
_____________________________________________________________________
This matter is before the Court on a Motion for Summary Judgment filed by
Plaintiff, the Securities and Exchange Commission (“SEC”), against Defendant Mantria
Corporation.1 (Doc. # 159.) For the following reasons, Plaintiff’s Motion is granted.

1

On April 20, 2011, Plaintiff filed an Unopposed Motion to Withdraw Plaintiff’s Motion for
Summary Judgment [Docket #159] against Defendants Troy B. Wragg, Amanda E. Knorr, and Wayde
M. McKelvy (Doc. # 188), which the Court granted on April 21, 2011 (Doc. # 189). Accordingly, Plaintiff’s
Motion only remains pending against Defendant Mantria Corporation. The SEC did not file the Motion
against Defendant Donna McKelvy because, on December 16, 2009, the Court granted the SEC’s Motion
for Permanent Injunction against Ms. McKelvy. (Motion at Doc. # 31; Order at Doc. # 36). For reasons
unknown, the Motion was also not filed against Defendant Speed of Wealth, against whom the Clerk of
Court entered default on March 15, 2011. (Doc. # 171.) The SEC has not filed a motion for default
judgment against Speed of Wealth.

I. PROCEDURAL HISTORY
This action arises from a Ponzi scheme perpetrated by the above-captioned
Defendants from September 2007 through November 2009. On November 16, 2009,
the SEC filed a Complaint against Defendants alleging the following four claims of relief:
(1) fraud in the offer and sale of securities in violation of the Securities Act, Section
17(a), 15 U.S.C. § 77q(a); (2) fraud in the purchase or sale of securities in violation of
the Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. §
240.10b-5; (3) sale of unregistered securities in violation of the Securities Act, Sections
5(a) and (c), 15 U.S.C. §§ 77e(aa), 77(c); and (4) violations of the Exchange Act
15(a)(1), 15 U.S.C. § 78o(a)(1).2
Also on November 16, 2009, the SEC filed a Motion for Ex Parte Temporary
Restraining Order, Preliminary Injunction and Other Equitable Relief (“Motion for TRO”),
seeking an order temporarily restraining Defendants from violating federal securities
law; and other equitable relief, including: an order freezing investor funds wherever
located, and all assets traceable to such funds; prohibiting each of the Defendants from
accepting additional investments; requiring an accounting of investors’ funds and other
assets; ordering expedited discovery; prohibiting Defendants from altering or destroying
documents; and ordering alternative service. (Doc. # 2 at 1-2.) That same day, a

2

The SEC’s fourth claim of relief only extends to Defendants Wragg, Knorr, Wayde McKelvy,
and Donna McKelvy; it is not asserted against Defendant Mantria. (See Doc. # 1 at 25-26).

2

hearing was first held before Judge Robert E. Blackburn on the SEC’s Motion for TRO3
(See Courtroom Minutes, Doc. # 10.) A second hearing was held later that afternoon
before the undersigned, at which the Court found that the SEC had established a
violation of securities laws, entered a TRO, and set the matter for a Preliminary
Injunction Hearing. (See Courtroom Minutes, Doc. # 11; TRO, Doc. # 15.)
The Preliminary Injunction Hearing was held on December 1 and 2, 2009.
(See Courtroom Minutes, Doc. ## 24, 25.) Upon receipt of documentary evidence and
witness testimony, the Court made oral findings and conclusions of law, granted the
SEC’s Motion for Preliminary Injunction, and entered an Order for Preliminary
Injunction, Asset Freeze, and Other Equitable Relief. (See Courtroom Minutes, Doc.
# 25; Order, Doc. # 26.)
On March 10, 2010, the SEC filed a Motion for Order to Show Cause Why
Defendants Troy Wragg and Mantria Corporation Should Not Be Held in Contempt of
Court (Doc. # 60), in light of Wragg’s execution of a contract transferring frozen Mantria
assets worth as much as $250,000, in part for personal gain, which execution and
transfer was in direct violation of the Court’s December 2, 2009 Order freezing
Defendant’s assets. That same day, the SEC also filed a Motion for Appointment of
a Receiver (Doc. # 69). On March 26, 2010, after hearing testimony and receiving
evidence at a Show Cause Hearing, the Court granted the SEC’s Motion for Order to
Show Cause, as well as the SEC’s Motion to Appoint a Receiver, and directed the SEC
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Judge Blackburn initially presided at the hearing due to the undersigned’s unavailability and
consequent inability to hold an immediate hearing.

3

to file a proposed order concerning the Receiver’s appointment. (Doc. # 80.) The SEC
duly filed the proposed order on April 23, 2010 (Doc. # 81-1) and, on April 30, 2010, the
Court appointed a Receiver over Defendant Mantria Corporation and its subsidiaries
and affiliates, including Speed of Wealth and its subsidiaries and affiliates.
On February 25, 2011, the SEC filed the instant Motion for Summary Judgment
against Defendants Mantria, Wragg, Knorr, and McKelvy. (Doc. # 159.) On March 18,
2011, the SEC filed an Unopposed Motion to Stay Determination of Plaintiff’s Motion for
Summary Judgment Against Settling Defendants, namely Wragg, Knorr, and McKelvy,
in light of written settlement agreements it entered into with these individuals, which
Motion the Court granted on March 21, 2011. (Doc. ## 176, 180.) Also on March 21,
2011, the SEC filed Unopposed Motions for Permanent Injunction and Other Relief as to
Defendants Wragg and Knorr (Doc. ## 178, 179), which the Court granted on March 29,
2011 (Doc. ## 182, 183). Likewise, on March 31, 2011, the SEC filed an Unopposed
Motion for Permanent Injunction and Other Relief as to Defendant Wayde M. McKelvy
(Doc. # 184), which the Court granted on April 5, 2011 (Doc. # 186). In light of the
SEC’s settlement with the aforementioned individual Defendants, on April 20, 2011, the
SEC filed an Unopposed Motion to Withdraw Plaintiff’s Motion for Summary Judgment
[Docket #159] Against Defendants Troy B. Wragg, Amanda E. Knorr, and Wayde M.
McKelvy (Doc. # 188), which the Court granted on April 21, 2011 (Doc. ## 189, 190).

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On April 1, 2011, the SEC filed its Reply in support of its Motion for Summary
Judgment against Defendant Mantria. (Doc. # 185.) In pertinent part, the SEC noted
Mantria’s failure to respond to the instant Motion, which failure the SEC asserts
amounts to an admission of the facts upon which the Motion is based, and states that,
as a result, the Court should grant summary judgment against Mantria.
II. FACTUAL BACKGROUND4
This case arises from a Ponzi scheme Defendants are alleged to have
perpetrated from September 2007 through November 2009 and through which
Defendants are alleged to have defrauded investors over $54 million. Mantria was
founded and operated by Defendant Troy B. Wragg, who functioned as Mantria’s Chief
Executive Officer, and Defendant Amanda E. Knorr, who functioned as Mantria’s Chief
Operating Officer. Defendant Wayde M. McKelvy is the founder and managing member
of Speed of Wealth, LLC,5 which acted as a promoter of Mantria securities. Of the
$54,531,488.57 that Mantria raised, Mantria paid a total of $17,500,453.21 to investors,
using investors’ own funds to pay those returns. Additionally, Mantria used millions of
dollars of investor funds to build non-revenue-generating infrastructure, and to pay
Wragg, Knorr, and McKelvy commissions and compensation. Based on the funds

4

The following facts are undisputed and are taken from Plaintiff’s pleadings, briefs, and attached

exhibits.
5

Some Mantria investors purchased Mantria securities through limited liability companies created
by McKelvy and Speed of Wealth, while others purchased Mantria securities directly from Mantria.

5

raised and the funds paid to investors, Mantria generated a profit of $37,031,035.36.
(Doc. # 159, ¶ 20; Doc. # 159-2, ¶¶ 5-8; Id. at 5).6
Mantria attracted potential investors to seminars held by McKelvy and Speed of
Wealth throughout the country, which seminars were advertised by television, radio,
Internet, print media, and e-mail. At the seminars, investors were encouraged to
liquidate their traditional investments, borrow as much as possible, and invest as much
as possible in Mantria’s securities offerings. After these seminars, Defendants
McKelvy, Wragg, and Knorr would send attendees e-mails promoting Mantria’s
securities and provide written securities offerings in the form of private placement
memoranda. Knorr also promoted Mantria securities on an Internet radio broadcast.
Mantria’s securities purported to provide an opportunity to invest in Mantria’s various
business ventures, including real estate, a financial lending company (that used investor
funds to provide down payments for Mantria real estate), and green energy, in which
Mantria’s efforts would be profitable and result in payments to investors. Defendants
McKelvy, Wragg, and Knorr described Mantria’s securities as safe, high-yield
investments with 17% to hundreds of percent returns, or even infinite returns.

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In support of its Motion for Summary Judgment, the SEC asserts that Defendants Wragg and
Knorr, in addition to Mantria, profited in the amount of $37,031,035.36. (Doc. # 159, ¶ 20.) However, the
SEC’s submitted documents render unclear as to whether Defendants Wragg and Knorr profited in this
amount. As evidence of the $6,273,632.78 in commissions McKelvy generated from the scheme, the SEC
points to a spreadsheet at Doc. # 159-21. That same spreadsheet appears to indicate that during the
course of the Ponzi scheme, Wragg and Knorr generated commissions in the amount of $294,010.16 and
$249,010.16, respectively.

6

Throughout the course of this scheme, Mantria, Wragg, Knorr, and McKelvy
made material misrepresentations in connection with offers and sales of Mantria’s
securities, including that: (1) Mantria generated millions of dollars in annual profits
when, in fact, Mantria generated no profits; (2) Mantria is the world’s largest
manufacturer and distributor of biochar and that Mantria’s biochar operations were very
profitable when, in fact, Mantria never sold any biochar and never made any revenues
from biochar; (3) Mantria built the world’s first biorefinery plant in New Mexico when, in
fact, Mantria never built or operated such a facility; (4) Mantria’s biochar manufacturing
facility in Tennessee is producing $6.2 million annually when, in fact, the facility never
generated revenue; (5) Mantria paid investors through profitable ventures when, in fact,
it paid investor returns using investors’ money; (6) Mantria was not a Ponzi scheme
when, in fact, it was; and (7) McKelvy reviewed Mantria’s books when, in fact, McKelvy
did not regularly look at Mantria’s books and did not know what Mantria did with its
books.
While Defendants were making the aforementioned material misrepresentations
to actual and prospective investors, they exchanged several internal e-mails that hinted
at the fraudulent nature of the scheme. (See Wragg e-mails at Doc. # 159-17 at 2
(McKelvy to Wragg: “110 registered for tonight 75% names I don’t recognize. Let’s blow
them away my brother!”; Wragg to McKelvy: “Mantria Speed of Wealth = MSOW =
Many Souls Owe Wayde”); Id. at 4 (McKelvy to Wragg: “I really think you are going to
be a Billionaire . . . [I] sure would like about 250 [million,]”; Wragg to McKelvy: “I’m

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telling you – I haven’t been this excited in a long time. We are all going to be very rich,
but most importantly, we will be very rich together!”); see also Knorr e-mail at Doc.
#159-18 at 2 (“Let’s just make some f*****g money.”)).
In connection with the offers, sales, and purchases of Mantria’s securities,
Defendants failed to disclose that McKelvy made 12.5% commissions from Mantria
securities sales, which commissions totaled more than $6.2 million. Further, the
securities offered and sold were not registered with the Securities and Exchange
Commission (“SEC”), and Mantria, Wragg, Knorr, and McKelvy were not affiliated with
any broker dealer registered with the SEC.
III. STANDARD OF REVIEW
The purpose of a summary judgment motion is to assess whether trial is
necessary. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Fed. R. Civ. P.
56(c) provides that summary judgment shall be granted if “the pleadings, the discovery
and disclosure of materials on file, and any affidavits show that there is no genuine
issue as to any material fact and that the movant is entitled to judgment as a matter
of law.” A fact is “material” if it pertains to an element of a claim or defense; a factual
dispute is “genuine” if the evidence is so contradictory that if the matter went to trial, a
reasonable jury could return a verdict for either party. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). However, the nonmoving party “must do more
than simply show that there is some metaphysical doubt as to the material facts.”
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

8

“The mere existence of a scintilla of evidence in support of the [nonmoving party’s]
position will be insufficient; there must be evidence on which the jury could reasonably
find for the [nonmoving party].” Anderson, 477 U.S. at 252.
“The movant bears the initial burden of making a prima facie demonstration of
the absence of a genuine issue of material fact and entitlement to judgment as a matter
of law.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir. 1998) (citing
Celotex, 477 U.S. at 323). The “movant may make its prima facie demonstration [of the
absence of a genuine issue of material fact] by simply pointing out to the court a lack
of evidence for the nonmovant on an essential element of the nonmovant’s claim.”
Id. at 671. After the movant has met its initial burden, the burden shifts to the
nonmovant to put forth sufficient evidence for each essential element of the claim such
that a reasonable jury could find in its favor. See Anderson, 277 U.S. at 248; Simms v.
Okla. ex rel. Dep’t of Mental Health & Substance Abuse Servs., 165 F.3d 1321, 1326
(10th Cir. 1999). The nonmovant must go beyond the allegations and denials of his
pleadings and provide admissible evidence,7 which, as mentioned, the Court views in
the light most favorable to the nonmovant. Adickes v. S.H. Kress & Co., 398 U.S. 144,
157 (1970); Panis v. Mission Hills Bank, N.A., 60 F.3d 1486, 1490 (10th Cir. 1995)
(citing Celotex, 477 U.S. at 324). However, conclusory statements based merely on

7

While the parties need not present evidence “in a form that would be admissible at trial, [ ] the
content or substance of the evidence must be admissible.” Thomas v. Int’l Bus. Machs., 48 F.3d 478, 485
(10th Cir. 1995).

9

conjecture, speculation, or subjective belief are not competent summary judgment
evidence. Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
Where, as here, a nonmovant fails to file a timely response, the nonmovant
waives the right to respond and “confesse[s] all facts asserted and properly supported in
the summary judgment motion.” Murray v. City of Tahlequah, Okla., 312 F.3d 1196,
1200 (10th Cir. 2002). However, the nonmovant’s failure to respond does not relieve
the Court of its duty to make the specific determinations required by Rule 56(c). Id.
IV. ANALYSIS
A.

FRAUD IN THE OFFER OR SALE OF SECURITIES - VIOLATIONS OF
SECURITIES ACT SECTION 17(a) [15 U.S.C. § 77q(a)] (CLAIM 1) AND
FRAUD IN THE PURCHASE OR SALE OF SECURITIES IN VIOLATION OF
EXCHANGE ACT SECTION 10(b) AND RULE 10b-5 [15 U.S.C. § 78j(b) AND
17 C.F.R. § 240.10b-5] (CLAIM 2)
1.

Imputing the Actions of Individual Defendants to Mantria

Where, as here, a corporate defendant is a corporate embodiment of individual
defendants, the individual defendants’ awareness of Securities Act violations, including
violations of Section 17(a), is imputable to the corporate defendant. S.E.C. v. Manor
Nursing Centers, Inc., 458 F.2d 1082, 1089 (2d Cir. 1972); see also Powell Prods. v.
Marks, 948 F. Supp. 1469, 1480-81 (D. Colo. 1996) (stating that officer’s knowledge
could be imputed to the corporation). Additionally, “the principles of agency may be
used to impute the actions of corporate officers and directors to the corporation itself-in
essence, making the corporation liable under § 10(b) [of the Exchange Act] and Rule
10b-5. A corporation may be held liable co-extensively with the officer or employee

10

actually responsible for the fraudulent conduct engaged in while in the course of the
employment and while transacting corporate business.” APA Excelsior III, L.P. v.
Windley, 329 F. Supp. 2d 1328, 1353-54 (N.D. Ga. 2004) (internal citations and
modification omitted); see also Magnum Foods v. Cont’l Cas. Co., 36 F.3d 1491, 1499
(10th Cir. 1994) (“Since a corporation is only a legal entity, it cannot act or have a
mental state by itself. It can only act through its officers and employees, and these acts
are attributed to the corporation under basic principles of agency.”) (internal citation
omitted). In the instant case, as discussed below, the Court finds that the SEC has
presented ample evidence that Defendants Wragg and Knorr, as Mantria officers, and
Defendant McKelvy, as a seller of Mantria securities, functioned as agents of Mantria
and, thus, their knowledge and actions may be imputed to Mantria itself.
2.

Undisputed Evidence Supporting the SEC’s Claims

In support of the first claim of relief, the SEC alleges that Mantria, through its
officers Wragg and Knorr, and McKelvy, as a promoter of Mantria securities, violated
Section 17(a) of the Securities Act, 15 U.S.C. §§ 77q(a) when it committed fraud in the
offer or sale of securities. (Doc. # 1 at 23.) In particular, the SEC asserts that Mantria
“directly or indirectly, in the offer and sale of securities, by use of the means or
instruments of transportation or communication in interstate commerce or by use of
the mails, employed a device, scheme or artifice to defraud with scienter; negligently
obtained money or property by means of untrue statements of material fact or by
omitting to state material facts necessary to make the statements made, in light of

11

the circumstances under which they are made, not misleading; or negligently engaged
in transactions, practices, or courses of business that operated or would operate as a
fraud or deceit upon the purchasers of securities.” (Id.)
In support of the second claim of relief for violations of the Exchange Act Section
10(b) and Rule 10b-5, the SEC complains of similar conduct identified in connection
with Claim 1. (Id. at 24.)
Pursuant to 15 U.S.C. § 77q(a),
It shall be unlawful for any person in the offer or sale of any securities
or any security-based swap agreement . . . by the use of any means or
instruments of transportation or communication in interstate commerce
or by use of the mails, directly or indirectly (1) to employ any device,
scheme, or artifice to defraud, or (2) to obtain money or property by
means of any untrue statements of a material fact or omission to state a
material fact necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading; or (3) to
engage in any transaction, practice, or course of business which operates
or would operate as a fraud or deceit upon the purchaser.
The term security includes any “security feature,” “evidence of indebtedness,”
“certificate of interest or participation in any profit-sharing agreement,” or “investment
contract,” of the kind that Mantria was selling or offering for sale. 15 U.S.C. § 77b(a)(1).
“[W]hether a financial relationship constitutes an investment contract is ‘whether the
scheme involves [1] an investment of money [2] in a common enterprise [3] with profits
to come solely from the efforts of others.’” Uselton v. Commercial Lovelace Motor
Freight, Inc., 940 F.2d 564, 572 (10th Cir. 1991) (quoting S.E.C. v. W.J. Howey Co., 328
U.S. 293 (1946)).

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Similarly, pursuant to the Exchange Act Section 10(b), it is
unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce or of the mails, or of any facility of
any national securities exchange . . . (b) [t]o use or employ, in connection
with the purchase or sale of any security . . . not so registered [on a
national securities exchange] . . . any manipulative or deceptive device
or contrivance in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
15 U.S.C. § 78j(b). Such conduct is also proscribed by Rule 10b-5, which states,
It shall be unlawful for any person, directly or indirectly, by the use of any
means or instrumentality of interstate commerce, or of the mails or of any
facility of any national securities exchange, (a) To employ any device,
scheme, or artifice to defraud, (b) To make any untrue statement of
material fact or to omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under which they
were made, not misleading, or (c) To engage in any act, practice, or
course of business which operates or would operate as a fraud or deceit
upon any person, in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5. Thus, to establish a Section 10(b) or Rule 10b-5 violation, the
SEC must prove that Defendants made: (1) a misrepresentation or omission (2) of
material fact (3) with scienter (4) in connection with the purchase or sale of securities,
and (5) by virtue of the requisite jurisdictional means. S.E.C. v. Wolfson, 539 F.3d
1249, 1256 (10th Cir. 2008).
The term “scienter” refers to “a mental state embracing intent to deceive,
manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976)
(quoted in City of Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1258 (10th Cir.
2001)). Not only does “scienter” encompass knowing or intentional misconduct, but for
purposes of Section 10(b), it also encompasses recklessness, which is “conduct that is
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an extreme departure from the standards of ordinary care, and which presents a danger
of misleading buyers or sellers that is either known to the defendant or is so obvious
that the actor must have been aware of it[.]” 264 F.3d at 1258 (quoting Anixter v. HomeStake Prod. Co., 77 F.3d 1215, 1232 (10th Cir. 1996)). The “in connection with”
requirement of Section 10(b) and Rule 10b-5 includes situations where a broker accepts
payment for securities that he never intends to deliver, or who sells customer securities
with intent to misappropriate the proceeds. S.E.C. v. Zandford, 535 U.S. 813, 819
(2002). Finally, a “statement or omission is only material if a reasonable investor would
consider it important in determining whether to buy or sell stock, and if it would have
significantly altered the total mix of information available to current and potential
investors.” City of Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1265 (10th Cir.
2001) (internal quotation omitted).
In the instant case, the SEC has presented evidence that Defendant Mantria,
through its officers, Defendants Wragg and Knorr, and through Defendant McKelvy,
issued securities offerings in the form of private placement memoranda, and used
instruments of communication in interstate commerce (e.g., e-mail or radio broadcasts)
or the mail in connection with the offer or sale of securities. (See Doc. # 159-9 at 128:219, 129:17-130:6; Doc. # 159-10 at 95:17-23; Doc. # 159-16; Doc. # 159-3 through #
159-6; # 159-12.) Most notably, the private placement memoranda themselves clearly
state that the offerings are securities. (See, e.g., Doc. # 159-4 at 4, 10, 19, 27.) The
SEC has also presented considerable evidence that Mantria, through Wragg, Knorr, and

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McKelvy, made material misrepresentations and omissions concerning the probable
returns on investment and the risks inherent in the securities offerings, all in an effort to
foster the above-described fraudulent scheme to the detriment of Mantria’s investors
who relied on such information when making their investment decisions. Additionally,
the SEC has presented evidence that Mantria, through its officers (Wragg and Knorr),
had the requisite scienter, whether by way of an intent to deceive, manipulate or
defraud, or by engaging in conduct that was an extreme departure from the standards of
ordinary care, such that it misled buyers, and the danger of misleading buyers was so
obvious that Mantria, through its officers, must have been aware of it. For example, not
only did Defendant Mantria, through the other Defendants, entice victim investors to
purchase unregistered securities with illusory promises of improbably high rates of
return, Mantria, through its agent’s, Defendant McKelvy’s, presentation at various
Mantria investment seminars, encouraged potential investors to liquidate their traditional
investments, including the equity in their homes, and to borrow as much money as
possible to fund their investments with Mantria. (See, e.g., Transcript of May 7, 2008
Speed of Wealth Seminar, Doc. # 159-13 at 70-86; Transcript of May 21, 2009 Speed of
Wealth Seminar, Doc. # 159-14 at 62-64.)
Having reviewed the submitted evidence, the Court is satisfied that Mantria has
met its burden under Rule 56 and that summary judgment against Mantria is warranted
with respect to the first claim of relief for violations of Securities Act Section 17(a),

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15 U.S.C. § 77q(a) and the second claim of relief for violations of the Exchange Act
Section 10(b), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5.
B.

SALE OF UNREGISTERED SECURITIES IN VIOLATION OF SECURITIES
ACT SECTIONS 5(a) AND (c) [15 U.S.C. §§ 77e(a), 77e(c)] (CLAIM 3)
In connection with the third claim for relief, the SEC alleges that Mantria, through

its officers Wragg and Knorr, and McKelvy, as a promoter of Mantria securities, violated
sections 5(a) and (c) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c) when it sold
securities that were not registered with the SEC. (Doc. # 1 at 24-25.)
“To make out a prima facie case of a violation of section 5(a), the SEC must
show that securities were offered or sold in interstate commerce and that no registration
statement was filed for any such offering or sale. Once the SEC establishes a prima
facie case, it falls to Defendants to prove that the securities in question are exempt from
registration.” S.E.C. v. Prater, 289 F. Supp. 2d 39, 51 (D. Conn. 2003) (citing S.E.C. v.
Cavanagh, 155 F.3d 129, 133 (2d Cir. 1998)). Scienter is not an element of a violation
of the Securities Act’s registration requirements. Aaron v. S.E.C., 446 U.S. 680, 714 n.5
(1980).
Having reviewed the submitted evidence, the Court is satisfied that Mantria has
met its burden under Rule 56. It is undisputed that the securities offerings were not
registered under the Securities Act. (See Defendants Mantria, Wragg, and Knorr’s
Answer to the Complaint, Doc. # 1, ¶¶ 1, 25, 47; see also McKelvy Testimony, Doc.
# 159-9 at 37:23-38:18.) Additionally, as already discussed, the securities were offered
or sold in interstate commerce, by mail and e-mail. Accordingly, the Court finds that
16

summary judgment against Mantria is warranted with respect to the third claim of relief
for violations of Securities Act Sections 5(a) and (c), 15 U.S.C. §§ 77e(a), 77e(c).
C.

REQUEST FOR PERMANENT INJUNCTION AGAINST FUTURE VIOLATIONS
OF FEDERAL SECURITIES LAWS
In its Motion for Summary Judgment, the SEC asks the Court to enter a

permanent injunction to bar Mantria’s future violations of federal securities laws. (Doc.
# 159 at 17-18.)
As stated by the Tenth Circuit,
An injunction based on the violation of securities laws is appropriate if
the SEC demonstrates a reasonable and substantial likelihood that the
defendant, if not enjoined, will violate securities laws in the future.
Determination of the likelihood of future violations requires analysis of
several factors, such as the seriousness of the violation, the degree of
scienter, whether defendant’s occupation will present opportunities for
future violations and whether defendant has recognized his wrongful
conduct and gives sincere assurances against future violations. Although
no single factor is determinative, we have previously held that the degree
of scienter ‘bears heavily’ on the decision. A knowing violation of 10(b) or
17(a)(1) will justify an injunction more readily than a negligent violation of
17(a)(2) or (3).
S.E.C. v. Pros Int’l, Inc., 994 F.2d 767, 769 (10th Cir. 1993) (internal citations omitted).
In the instant case, as discussed above, over the course of approximately two
years, Defendants raised more than $54 million from over 100 investors by egregiously,
recklessly, knowingly, and shamelessly perpetrating a fraudulent scheme whereby they
used misrepresentations, omissions, and blatant lies to induce unsuspecting and
unwitting victim investors to liquidate the equity in their homes and take out bank loans
to invest in Defendants’ scheme, which was nothing more than smoke and mirrors.

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Thus, given the seriousness and extent of the violations and the degree of scienter
required to establish and further the fraudulent scheme, the Court finds that entry of
a permanent injunction is warranted.
D.

DISGORGEMENT OF ILL-GOTTEN GAINS
In its Motion, the SEC asks the Court to order disgorgement of Mantria’s ill-gotten

gains from the aforementioned Ponzi scheme. (Doc. # 159 at 18.) In addition to these
gains, the SEC seeks “interest.” (Id. at 19.) The Court presumes that the SEC’s
reference to “interest” is to prejudgment interest.
“Disgorgement is by nature an equitable remedy as to which a trial court is
vested with broad discretionary powers.” S.E.C. v. Maxxon, Inc., 465 F.3d 1174, 1179
(10th Cir. 2006). Disgorgement is especially appropriate with respect to profits obtained
through securities fraud, as it is a remedy designed to prevent the wrongdoer’s unjust
enrichment and to deter others’ violations of securities laws. United States v. Nacchio,
573 F.3d 1062, 1080 (10th Cir. 2009). “The amount of disgorgement ordered by a court
for violation of securities laws need not be an exact calculation of the defendant’s
profits, but only a reasonable approximation of profits causally connected to the
violation. Because such calculations are not capable of exactitude, any risk of
uncertainty in calculating disgorgement should fall on the wrongdoer whose illegal
conduct created that uncertainty.” S.E.C. v. Haligiannis, 470 F. Supp. 2d 373, 384
(S.D.N.Y. 2007) (internal quotations and modifications omitted). In a Ponzi scheme, the
difference between the total contributions from investors and the total distributions to

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investors has been deemed the proper means of estimating a defendant’s ill-gotten
gains. Id. at 385. With respect to prejudgment interest, such an award lies within the
Court’s discretion and prevents a defendant from benefitting from what amounts to
an interest-free loan. Id. Generally, prejudgment interest is calculated at the IRS
underpayment rate, which reflects the costs to the defendant had it borrowed money
from the government. Id. “[I]t remains within the court’s discretion to determine how
and to whom the money will be distributed, and if the district court determines that no
party is entitled to receive the disgorged profits, they will be paid to the United States
Treasury[.]” Official Comm. of Unsecured Creditors of Worldcom, Inc. v. S.E.C., 467
F.3d 73, 81 (2d Cir. 2006) (internal citations and quotations omitted).
In the instant case, in light of the SEC’s evidence that Defendant Mantria,
through the individual Defendants, unjustly enriched itself through the execution of the
above-described Ponzi scheme, the Court finds that disgorgement of the profits Mantria
obtained through the Ponzi scheme is warranted. As previously noted, Defendants
raised $54,531,488.57 in investor contributions and returned only $17,500,453.21
to them in distributions. Thus, Mantria unjustly enriched itself in an amount of
$37,031,035.36. Because Mantria waived the opportunity to respond, the Court will
conclude that this computation is correct. Further, the Court finds that an award of
prejudgment interest at the IRS underpayment rate is appropriate. Accordingly, the
SEC is directed to calculate the prejudgment interest owed on $37,031,035.36 from
November 23, 2009, the date identified in the Consent Orders with Defendants Wragg,

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Knorr, and McKelvy (See, e.g., Doc. #179-2 at 4), to the date of this Order. The
disgorged funds shall be made payable to the United States Securities and Exchange
Commission.8
E.

CIVIL PENALTIES
Finally, the SEC seeks the imposition of civil penalties against Defendant

Mantria “up to the amount of pecuniary gain for each Defendant.” (Doc. # 159 at 20.)
“Monetary penalties serve the dual functions of punishment and deterrence. Courts
have looked to the following general factors when imposing penalties under the civil
penalty provisions of the securities laws: (1) the egregiousness of the violations at
issue; (2) defendants’ scienter; (3) the repeated nature of the violations; (4) defendants’
failure to admit to their wrongdoing; (5) whether defendants’ conduct created substantial
losses or the risk of substantial losses to other persons; (6) defendants’ lack of
cooperation and honesty with authorities, if any; and (7) whether the penalty that would
otherwise be appropriate should be reduced due to defendants’ demonstrated current
and future financial condition.” S.E.C. v. Huff, 758 F. Supp. 2d 1288, 1363 (S.D. Fla.
2010) (citations omitted).

8

In the instant Motion, the SEC also seeks disgorgement of Defendants Wragg’s, Knorr’s, and
McKelvy’s ill-gotten profits. (See Doc. # 159 at 19.) However, pursuant to the SEC’s later-filed Consent
Decrees with each of these Defendants, such disgorgement “shall be determined by the Court upon
motion of the Commission[.]” (See Doc. # 178-1, ¶ 3; Doc. # 179-1, ¶ 3; Doc. # 184-1, ¶ 3.) Further, the
Consent Decrees also state that, “[i]n connection with the Commission’s motion for disgorgement and/or
civil penalties, the parties may take discovery, including discovery from appropriate non-parties.” (Id.)
In light of the SEC’s limited withdrawal of the instant Motion for Summary Judgment as against
Defendants Wragg, Knorr, and McKelvy, and the representation that separate motions for disgorgement
will be filed, the Court reserves ruling on the SEC’s request for disgorgement of Wragg’s, Knorr’s, and
McKelvy’s ill-gotten gains until such time that proper motions are before the Corut.

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Nearly identical penalties frameworks are set forth in 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). Both Acts set forth a three-tier penalty structure in which each tier provides
for a penalty that shall not exceed the greater of either a specific enumerated statutory
amount or “the gross amount of pecuniary gain to such defendant as a result of the
violation.”9
Upon consideration of these factors, the Court finds that imposition of civil
penalties is warranted. As previously discussed, Defendants engaged in egregious
violations of the Securities and Exchange Acts and Regulations with scienter and
recklessness. Further, Defendants repeatedly engaged in these acts for at least two
years, during which time they preyed on unsuspecting and unwitting investors who
liquidated their retirement accounts and risked their home equity only to have their life’s
savings washed away by Defendants’ sociopathic greed. Thus, without question,
Defendants’ conduct is deserving of the most severe penalties available under 15
U.S.C. § 77t(d). However, despite the fact that Mantria failed to respond to the instant

9

Under the first tier, “[f]or each violation, the amount of the penalty shall not exceed the greater of
(i) $5,000 for a natural person or $50,000 for any other person, or (ii) the gross amount of pecuniary gain
to such defendant as a result of the violation.” Under the second tier, the “amount of penalty for each such
violation shall not exceed the greater of (i) $50,000 for a natural person or $250,000 for any other person
or (ii) the gross amount of pecuniary gain to such defendant as a result of the violation,” if the violation
“involved fraud, deceit, manipulation, or deliberate or reckless disregard of the regulatory requirement.”
Finally, under the third tier, “the amount of penalty for each such violation shall not exceed the greater of
(i) $100,000 for a natural person or $500,000 for any other person, or (ii) the gross amount of pecuniary
gain to such defendant as a result of the violation,” if the violation “involved fraud, deceit, manipulation, or
deliberate or reckless disregard of a regulatory requirement”; and “such violation directly or indirectly
resulted in substantial losses or created a significant risk of substantial losses to other persons.” 15
U.S.C. § 77t(d)(2).

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Motion and, thus, present any evidence as to whether its financial condition warrants
a reduction in the assessed penalties, the Court is well-aware of Mantria’s financial
condition, based on periodic reports from the Receiver. (See Doc. ## 101, 126.) Thus,
mindful of the importance of maximizing recovery for the victim investors, and given the
limitations in Mantria’s liquid assets and the uncertainties concerning the optimal returns
on Mantria’s illiquid assets, the Court finds that a reduction in the assessed penalty is
warranted. Accordingly, the Court will impose a civil penalty in the amount of $500,000,
the maximum enumerated statutory penalty for violations involving fraud, deceit,
manipulation, or deliberate or reckless disregard of a regulatory requirement, which
directly or indirectly resulted in substantial losses or created a significant risk of
substantial losses to Mantria’s investors. Such penalty against Mantria shall be paid
to the United States Treasury, in the care of the Comptroller for the Securities and
Exchange Commission.
V. CONCLUSION
Accordingly, IT IS ORDERED THAT:
1.

Plaintiff’s Motion for Summary Judgment(Doc. #159) against Mantria is
GRANTED;

2.

Plaintiff is directed to submit, within 14 days of this Order, a proposed Order of
Permanent Injunction against Mantria that conforms to the substance of this
Order;

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3.

The Court shall retain jurisdiction over this action for all purposes in connection
with this matter, including implementation and enforcement of the terms of this
Order and to grant such relief as the Court may deem necessary and just.
DATED: August

05

, 2011
BY THE COURT:

_______________________________
CHRISTINE M. ARGUELLO
United States District Judge

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