U.S. Securities and Exchange Commission v. Lunn et al

Filing 64

ORDER granting 61 Plaintiff's Renewed Motion for Order Setting Disgorgement, Prejudgment Interest and Civil Penalty against Defendant Geoffrey H. Lunn. A copy of this Order has been mailed to Defendant Lunn, Register No. 40376-013, at: BIG SPRING CORRECTIONAL INSTITUTION, 2001 Rickabaugh Dr., Big Spring, TX 79720. ORDERED by Judge Raymond P. Moore on 1/8/2018. (cthom, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Raymond P. Moore
Civil Action No. 12-cv-02767-RM-BNB
U.S. SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
GEOFFREY H. LUNN,
DARLENE A. BISHOP, and
VINCENT G. CURRY,
Defendants.
______________________________________________________________________________
ORDER
______________________________________________________________________________
This matter is before the Court on “Plaintiff’s Renewed Motion for Order Setting
Disgorgement, Prejudgment Interest and Civil Penalty against Defendant Geoffrey H. Lunn” (the
“Renewed Motion”) (ECF No. 61), as supplemented by the “Supplemental Brief Regarding
Disgorgement” (the “Supplement”) (ECF No. 63). For the reasons set forth below, the Renewed
Motion is GRANTED as stated herein.
I.

BACKGROUND
Briefly, according to Plaintiff U.S. Securities and Exchange Commission’s (the

“Commission”) Complaint, between February 2010 and February 2011, Defendant Geoffrey H.
Lunn carried out a fictitious investment scheme through a fictitious business called Dresdner
Financial. Through false statements, Defendant sought “Affiliates” to invest with Dresdner and
market Dresdner’s investment program to others. Describing the investment as “100%

guaranteed,” Defendant raised more than $5.77 million from at least 70 investors throughout the
United States and several foreign countries. Such funds were deposited into an account in the
name of WGC Group, Inc., which was owned and controlled by Defendant. Such funds were not
used for investments as promised; instead, Defendant used the money to make cash withdrawals,
pay Affiliates, pay $1 Million to a favored investor, provide money to three Las Vegas “call
girls,” and pay his personal and business expenses. Based on Defendant’s conduct, the
Commission asserted five claims against him and two Affiliates, alleging Defendant acted
fraudulently and with scienter. Those claims are: Violations of Securities Act Sections 5(a) and
5(c); Violations of Exchange Act Section 10(b) and Rule 10b-5; Violations of Securities Act
Section 17(a)(1); Violations of Securities Act Sections 17(a)(2) and 17(a)(3); and Violations of
Exchange Act Section 15(a). The Commission sought injunctive relief, disgorgement,
prejudgment interest, and civil monetary penalties.
After the filing of the Complaint, a default judgment was entered against Co-Defendant
Curry (an Affiliate) to disgorge $399,930 in ill-gotten gains, plus $28,914.11 in prejudgment
interest, for a total of $428,844.11. (ECF No. 27.) Thereafter, Defendant and the Commission
reached a bifurcated settlement agreement. This agreement provided for the immediate entry of
an order of permanent injunctive relief against Defendant, and for briefing to allow the Court to
determine the amount of disgorgement, prejudgment interest, and civil penalty to award. On
August 1, 2013, upon joint motion filed by the Commission and Defendant, and in accordance
with the parties’ agreement, the Court entered a consent judgment (the “Judgment”) against
Defendant. (ECF Nos. 33, 39, 40.)

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Under the Judgment, Defendant was – and is – permanently enjoined from engaging in
various actions and matters. In addition, Defendant agreed he would “pay disgorgement of illgotten gains, prejudgment interest thereon, and a civil penalty pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. §
78u(d)(3)],” as determined by the Court. (ECF No. 40, page 4 (brackets in original).) Defendant
also agreed that he would pay prejudgment interest calculated from the date of violation based on
the rate of interest used by the Internal Revenue Service, as set forth in 26 U.S.C. § 6621(a)(2).
In order to determine the amount to be awarded against Defendant, the Judgment
contemplated the Commission would file a motion, a hearing may be held on such motion, and
discovery may also be had. The Judgment also stated the Court may determine the issues raised
in the motion on the basis of affidavits and other documents. In addition, Defendant agreed that
the allegations of the Complaint should be accepted and deemed true by the Court, and that he
would be precluded from arguing that he did not violate the federal securities laws as alleged in
the Complaint.
As anticipated under the Judgment, the Commission filed a Motion for Order Setting
Disgorgement, Prejudgment Interest and Civil Penalty against Defendant Geoffrey H. Lunn.
(ECF No. 41.) However, before that motion was ruled upon, this case was administratively
closed pending the conclusion of a parallel criminal matter against Defendant, U.S. v. Lunn, 14cr-00161-REB-01, also pending in the District of Colorado. A judgment and a restitution order
have now been entered against Defendant in the parallel criminal case. That order requires
Defendant to pay restitution in the amount of $3,922,935, which is to be paid to the victims. The
resolution of the criminal case gave rise to the reopening of this civil case and the Renewed

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Motion now before the Court. Defendant has filed no response to the Renewed Motion, or its
Supplement.1 The Renewed Motion is now ripe for resolution.
II.

ANALYSIS
A. FACTS
Based on Defendant’s agreement, the Court deems – and, accordingly, finds – the

allegations of the Complaint to be true, i.e., that Defendant fraudulently solicited and received
more than $5.7 Million from at least 70 investors and misappropriated such funds for uses other
than as represented. In addition, based on the affidavits and other materials submitted by the
Commission, the Court finds of the $5,770,813 received by Defendant, $1,094,000 was used to
pay three investors who had deposited a total of $303,973 into the WGC account.
B. NO HEARING
As stated, the Judgment references a hearing as part of the process to determine the
amount to be paid by Defendant. The Court does not read the parties’ agreement or Judgment to
require a hearing to be held. Moreover, no party has requested a hearing. Indeed, Defendant
neither responded to the Renewed Motion nor updated his contact information. Finally, the
Court finds upon review of the record that no hearing is required. For example, there is no
indication that there will be any additional arguments or evidence to be presented on the issues at
hand should a hearing be held. There is no any indication by any party that the record before the
Court is incomplete. Accordingly, under such facts and circumstances, the Court finds a hearing
is not required or necessary.

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As the Court previously noted, orders issued have been returned as undeliverable to Defendant (ECF Nos. 55, 56,
57). The Court directed Defendant to update his address (ECF No. 59), but he has failed to do so. (See Docket.)
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C. DISGORGEMENT AND PREJUDGMENT INTEREST
“Generally, disgorgement is a form of restitution measured by the defendant’s wrongful
gain.” Kokesh v. S.E.C., -- U.S. --, 137 S. Ct. 1635, 1640 (2017) (alterations, citation, and
quotation marks omitted). “Disgorgement requires that the defendant give up ‘those gains ...
properly attributable to the defendant’s interference with the claimant’s legally protected
rights.’” Kokesh, 137 S. Ct. at 1640 (ellipses in original, citation omitted). In the context of a
Commission disgorgement, such orders are imposed by the courts for violating public laws and
for punitive purposes. Kokesh, 137 S. Ct. at 1643. As such, the primary purpose is to deter
violations of the securities laws by depriving wrongdoers of their ill-gotten gains. See Kokesh,
137 S. Ct. at 1643 (recognizing that courts have so consistently held); U.S. v. Badger, 818 F.3d
563, 566 (10th Cir. 2016) (“Disgorgement aids enforcement by making violations unprofitable,
thereby deterring future violations.”) Thus, the remedy “‘consists of factfinding by a district
court to determine the amount of money acquired through wrongdoing—a process sometimes
called ‘accounting’—and an order compelling the wrongdoer to pay that amount plus interest to
the court.’” Badger, 818 F.3d at 566 (quoting SEC v. Cavanagh, 445 F.3d 105, 116 (2d Cir.
2006)). The district court has broad discretion in calculating the amount to be disgorged. S.E.C.
v. JT Wallenbrock & Assocs., 440 F.3d 1109, 1113 (9th Cir. 2006).
Defendant’s ill-gotten gains are $5,770,813, all commingled in the WGC account. But,
of such gains, various amounts have been paid to others, including $1,094,000 paid to investors
A, B, and C. With respect to investor A, he2 deposited $9,973 into the WGC account and
received $50,000 from such account. As to investor B, he deposited $44,000 into the WGC
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The identities of the investors are unknown and unnecessary to the Court’s resolution. The Court uses the pronoun
“he” generically.
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account and received the same amount from such account. Finally, as to investor C, he deposited
$250,000 into the WGC account and received two payments totaling $1,000,000 from this
account. Thus, these three investors deposited a total of $303,973 into the account and received
a total of $1,094,000, $709,027 more than they invested. At issue here is, based on such
transactions, what amount constitutes Defendant’s ill-gotten gains for which disgorgement may
be had. The Commission contends no deduction should be made for funds used by Defendant
for any purpose. The Court examines the types of uses of the funds to determine what, if any,
offsets may be appropriate.
The Ninth Circuit has found that “it would be unjust to permit the defendants to offset
against the investor dollars they received the expenses of running the very business they created
to defraud those investors into giving the defendants the money in the first place.” JT
Wallenbrock & Assocs., 440 F.3d at 1114. The Court agrees. Thus, funds used to pay Affiliates
and business and other related expenses may not be used to offset the amount Defendant
received from investors.
As for funds used to benefit Defendant personally, e.g., payments to call girls, it should
go without saying that any disgorgement award should not be reduced by such amounts. To
hold otherwise would be tantamount to rewarding Defendant for his wrongful actions.
There are also other uses of funds, such as “payments to others,” for unknown purposes
and/or to unknown persons. It matters not that such purposes (and the association of such
persons to Defendant) are unknown, as “[n]either the deterrent purpose of disgorgement nor the
goal of depriving a wrongdoer of unjust enrichment would be served” were the Court to allow

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for the offset for such unknown uses which were of Defendant’s choosing.3 JT Wallenbrock &
Assocs., 440 F.3d at 1115 (discussing business expenses).
This leaves the funds used to pay the three investors. The Commission contends no
reduction should be made for the amounts Defendant paid to the investors as such payments
were not made in the “ordinary course of business” but were overpayments made to three
“select” investors using funds Defendant stole from other investors. Thus, the Commission
asserts, the entire amount Defendant received ($5,770,813) should be disgorged. In the
alternative, the Commission argues the funds returned to the three investors (equivalent to what
they invested) of $303,973 may be an offset. Thus, the amount of disgorgement would be
$5,466,840 ($5,770,813 - $303,973).
As the Commission recognizes, there is legal authority which supports a reduction of any
disgorgement award for amounts an investor recovers as such recovery “would constitute a
partial return of [defendant’s] ill-gotten gains.” S.E.C. v. Levin, 849 F.3d 995, 1007 (11th Cir.
2017). The Court finds such conclusion sound. Although the record does not disclose why
Defendant chose to use some funds to repay only these three particular investors, other than
Defendant’s cryptic remark that somehow investor C “was a deserving person” (Complaint,
¶ 46), such investors nonetheless received a return of their investments. As such, the Court finds
the disgorgement award should be reduced by the $303,973 in, essentially, a return of funds. As
for the remaining payments to two of such investors (investors A and C) totaling $790,027,4 the
Court agrees no offset should be allowed as such funds were undoubtedly those received from

3

A different conclusion may have been reached had Defendant articulated some legitimate use of such funds and
persuaded the Court that an offset is appropriate. Defendant, however, made no such effort.
4
($1,094,000 (total paid) – $303,973 (return of funds)) or ($40,027 (investor A) + $750,000 (investor C)).
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other investors.5 Accordingly, on this record, the Court finds the only appropriate deduction
would be the funds which equate to a return of investment for investors A, B, and C, i.e.,
$303,973. Thus, the amount to be disgorged is $5,466,840.
The Commission has also requested prejudgment interest, to which Defendant did not
object. The Court finds an award of prejudgment interest is appropriate. See Digital Ally, Inc. v.
Z3 Tech., LLC, 754 F.3d 802, 819 (10th Cir. 2014) (“[T]he decision whether to award
prejudgment interest is generally committed to the district court’s discretion”). Based on the
Court’s determination that the amount to be disgorged is $5,466,840, the Commission has
calculated the interest to be $478,648. Defendant filed no objection to such calculation;
therefore, the calculation is accepted by the Court. Thus, the amount of disgorgement plus
prejudgment interest is $5,945,488,6 unless there are other offsets.
The record shows there are two other matters which may impact this disgorgement
obligation. First, there is a judgment of $428,844.11 ($399,930 disgorgement + $28,914.11
interest) against Defendant Curry. The $399,930 to Curry was paid from investor funds and is
also included in the $5,466,840. The Commission requests the Court to “treat” the $428,844.11
judgment against Curry as a joint and several liability between Curry and Defendant. The
problem, however, is that the judgment against Curry does not provide it is a joint and several
liability and the Commission cites to no authority and provides no analysis in support of such
request. The Court will not “treat” a judgment as something it is not. Nonetheless,
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Even though the funds were commingled in the WGC account, these three investors’ funds were contained within
such funds. However, once their investments were essentially returned, the remaining funds were those of other
investors. In light of the purpose of disgorgement orders, the Court will not allow Defendant to receive an offset for
amounts paid to some investors through the use of other investors’ funds, and thereby diminish the amount which is
subject to disgorgement for the benefit of the other investors who have not been reimbursed.
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The Court notes that the calculations at ECF 63-2 show two final numbers: $5,945,488 and $6,249,461. By the
Court’s calculations, the correct amount is $5,945,488.
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disgorgement is an equitable remedy. Defendant reaped the benefit of his ill-gotten gains.
Further, it is unknown to the Court whether Curry will be able to pay the amount ordered; the
judgment against him was obtained by default. Accordingly, the Court will not reduce the
amount of disgorgement against Defendant by what Curry has been ordered to pay. Defendant
may, however, obtain a credit for any amount which Curry does pay.
Next, Defendant has been ordered to pay restitution in his related criminal case. The
Commission acknowledges that any amounts paid in restitution in connection with that criminal
case may be deemed to satisfy a portion of the disgorgement ordered in this case. The Court
agrees. See S.E.C. v. Palmisano, 135 F.3d 860, 863–64 (2d Cir. 1998) (acknowledging that to
the extent defendant pays or has paid restitution as ordered in the criminal judgment, such
payments will offset his disgorgement obligation in the civil judgment).
D. CIVIL PENALTIES
The Commission also seeks civil penalties. Based on Defendant’s admitted allegations of
violations of the securities anti-fraud statutes, causing substantial loss to the investors, the Court
finds that civil penalties are also appropriate.
There are three tiers of penalties. A first tier penalty may apply for any violation. See 15
U.S.C. §§ 77t(d)(2)(A) & 78u(d)(3)(B)(i). A second tier penalty may apply if the violation
“involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory
requirement.” See 15 U.S.C. §§ 77t(d)(2)(B) & 78u(d)(3)(B)(ii). A third tier penalty may apply
where (1) the violation “involved fraud, deceit, manipulation, or deliberate or reckless disregard
of a regulatory requirement” and (2) the violation “directly or indirectly resulted in substantial
losses or created a significant risk of substantial losses to other persons.” See 15 U.S.C. §§

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77t(d)(2)(C) & 78u(d)(3)(B)(iii). The maximum amount of a third-tier civil penalty for a natural
person, per violation, during the relevant time period is the greater of $150,000 or the gross
amount of pecuniary gain to such defendant. See 17 C.F.R. §201.1001. The amount of any
penalty, however, is to be determined by the court “in light of the facts and circumstances” of the
case. 15 U.S.C. §§ 77t(d)(2)(A) & 78u(d)(3)(B)(i).
In this case, initially, the Commission sought a third-tier civil penalty in the sum of the
$5,770,813, the amount Defendant raised through his fraudulent investment scheme.
Subsequently, in the Supplement, the Commission requested a civil penalty in an amount equal
to the disgorgement. The Commission argues such penalty is appropriate as Defendant’s
conduct was deliberate, fraudulent, and egregious; his actions caused significant losses to others;
and he showed no signs of remorse. Defendant has not refuted the Commission’s assertions. On
this record, the Court finds a third-tier civil penalty in an amount equal to the disgorgement is
appropriate. Thus, Defendant shall pay a civil penalty in the amount of $5,466,840.
E. PAYMENT TO WHOM
The Commission did not address to whom the amounts disgorged (plus interest) and the
civil penalty should be paid. In Kokesh, the Supreme Court noted “[a]s courts and the
Government have employed the remedy, disgorged profits are paid to the district court, and it is
within the court’s discretion to determine how and to whom the money will be distributed.” 137
S. Ct. at 1644 (citation and quotation marks omitted). “Some disgorged funds are paid to
victims; other funds are dispersed to the United States treasury.” 137 S. Ct. at 1644. As for any
civil penalties, as relevant here, they “shall be payable into the Treasury of the United States,
except as otherwise provided in section 7246 of this title….” 15 U.S.C. §§ 77t(d)(3)(A) &

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78u(d)(3)(C)(i). Under 15 U.S.C. § 7246(a), if the Commission obtains a civil penalty in an
action under the securities laws, “the amount of such civil penalty shall, on the motion or at the
direction of the Commission, be added to and become part of a disgorgement fund or other fund
established for the benefit of the victims of such violation.”
In this case, the Court is inclined to have the disgorged funds (and associated
prejudgment interest) distributed to the victims.7 Their identity, however, is unknown to this
Court. It is also unknown to the Court whether a disgorgement or other fund has been
established for Defendant’s victims and whether the Commission intends to add to such fund any
amounts received under this Order. Thus, the Court directs the Commission to provide a report
to address these issues as set forth below. After the receipt of the report, the Court may enter any
orders as necessary to address to whom or where any funds to be received from Defendant shall
be paid.
III.

CONCLUSION
Based on the foregoing, it is ORDERED
(1) That Plaintiff’s Renewed Motion for Order Setting Disgorgement, Prejudgment
Interest and Civil Penalty against Defendant Geoffrey H. Lunn (ECF No. 61) is
GRANTED as stated herein;
(2) That Defendant Geoffrey H. Lunn is liable for disgorgement of $5,466,840, together
with prejudgment interest in the amount of $478,648, for a total of $5,945,488 in
disgorgement obligations;

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This would be consistent with the order of restitution in the criminal case and the offset there for amounts
recovered in this case.
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(3) That Defendant Geoffrey H. Lunn is liable for civil penalties in the amount of
$5,466,840;
(4) That any payments made by Defendant Geoffrey H. Lunn as restitution in his parallel
criminal case shall be an offset to his disgorgement obligations under this Order;
(5) That any payments made by Defendant Vincent G. Curry as ordered by this court
(ECF No. 27) shall be an offset to Defendant Geoffrey H. Lunn’s disgorgement
obligations under this Order;
(6) That, on or before January 29, 2018, Plaintiff shall file a report advising (a) whether
a disgorgement or other fund will be or has been set up to pay the victims for any
amounts which may be received from Defendant Geoffrey H. Lunn; (b) whether any
civil penalties which may be received from Defendant Geoffrey H. Lunn shall be paid
into such fund; and (c) of its position as to where and how the disgorgement
obligations shall be paid; and
(7) That the Clerk shall mail a copy of this Order to Defendant Lunn, Register No.
40376-013, at: BIG SPRING CORRECTIONAL INSTITUTION, 2001 Rickabaugh
Dr., Big Spring, TX 79720.
DATED this 8th day of January, 2018.
BY THE COURT:

____________________________________
RAYMOND P. MOORE
United States District Judge

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