Securities and Exchange Commission v. End of the Rainbow Partners, L.L.C., The, et al

Filing 78

OPINION and ORDER by Judge Marcia S. Krieger on 8/19/2019, re: 53 Ms. Anderson's Motion to Dissolve is DENIED WITHOUT PREJUDICE as superseded. ORDERED that Ms. Anderson's Emergency Motion 66 is REFERRED to the Magistrate Judge for the purposes of conducting an evidentiary hearing and to issue a recommendation as to whether the current asset freeze should be continued in the form of a preliminary injunction and to issue a recommendation as to whether any other forms of relief requested by Ms. Anderson should be granted. (sphil, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Marcia S. Krieger
Civil Action No. 17-cv-02670-MSK
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
THE END OF THE RAINBOW PARTNERS, LLC,
Defendant,
and
CAROLYN M. ANDERSON,
THE END OF THE RAINBOW FOUNDATION, INC.,
SEAOMA CONSULTING COMPANY, and
BIGHORN WEALTH FUND, L.P.,
Relief Defendants.
______________________________________________________________________________
OPINION AND ORDER DENYING MOTION TO DISSOLVE AND REFERRING
EMERGENCY MOTION TO MAGISTRATE JUDGE
______________________________________________________________________________
THIS MATTER comes before the Court pursuant to Ms. Anderson’s Motion to Dissolve
(# 53) the preliminary injunction currently pending (# 17), the Securities and Exchange
Commission’s (“SEC”) response (# 59), and Ms. Anderson’s reply (# 60); and Ms. Anderson’s
Emergency Motion for Release of Funds (# 66), the SEC’s response (# 67), and Ms. Anderson’s
reply (# 69).
The Court assumes the reader’s familiarity with the proceedings to date. In summary, the
SEC commenced this action against Rainbow Partners, an alleged Ponzi scheme through which
its founder, the late Michael Anderson, defrauded investors and diverted investor funds to the

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personal benefit of himself, his (ex-)wife, and certain legal entities they owned. The SEC asserts
various securities fraud claims against Rainbow Partners, as well as a claim for equitable
disgorgement against the Relief Defendants, including Carolyn Anderson, Mr. Anderson’s exwife, and Seoma Consulting Co. (“Seoma”), an entity Ms. Anderson controls. At the
commencement of this action, the SEC sought a temporary restraining order that froze certain
assets in the hands of the Relief Defendants, on the grounds that those assets were traceable to
Mr. Anderson’s fraud and that the Relief Defendants had no legitimate claim to them. The Court
granted (# 5) that motion in part, temporarily freezing $66,000 in assets in the hands of the
Foundation and $465,000 in assets in the hands of Ms. Anderson.
The Court scheduled an evidentiary preliminary injunction hearing to address whether the
temporary asset freeze should be continued. The parties consented (# 29) to the continuation of
the freeze pending that hearing. At a hearing on January 16, 2018 (# 32), the Court determined
that, due to some confusion over who would be acting as the Personal Representative of Mr.
Anderson’s estate (and thus, who was the proper party to appear on behalf of the estate, which
was then a defendant in this action), it was inadvisable to conduct a preliminary injunction
hearing at that time. The Court directed the parties to resolve the probate dispute and that they
could then request that the Court set a hearing on the preliminary injunction motion. A few
weeks later, the SEC moved to dismiss (# 38) all claims against Mr. Anderson’s estate. In its
Order (# 39) dismissing the claims against the estate, the Court stated “[t]o the extent any party
believes that a hearing is necessary on any outstanding matter at this time, that party may move
for the setting of a hearing, identifying the specific issues that the hearing would encompass . . .”
Neither party requested the setting of a hearing for more than six months, and thus, the asset
freeze remained in place pursuant to the parties’ consent.

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In September 2018, Ms. Anderson filed the instant motion (# 53) seeking to dissolve the
asset freeze, alleging that the SEC had presented misleading information about the source of the
frozen funds; in actuality, she alleged, the frozen funds constituted assets that belonged solely to
Ms. Anderson and were acquired long before Mr. Anderson embarked on (much less profited
from) the fraudulent scheme. Ms. Anderson also argued that, in any event, she had a legitimate
claim to the frozen funds because they reflected payments of certain domestic relations
obligations that Mr. Anderson owed her, among other things.
More recently, Ms. Anderson filed the instant Emergency Motion (#66) to modify the
asset freeze. This motion repeats some of the same fundamental argument in her prior motion –
e.g. that the SEC misrepresented the evidence in its motion seeking the asset freeze, particularly
related to Ms. Anderson’s independent ownership of the assets in question – and supplemented it
with several additional arguments presented in more detail. Ms. Anderson also argues that an
emergency release of some portion of the funds is necessary to allow her to continue to retain the
services of her counsel in this matter.
A. Motion to Dissolve Asset Freeze
Ms. Anderson’s initial motion seeks to dissolve the asset freeze as it relates to the
$465,000 of her own personal funds . She presents two primary arguments: (i) that the SEC
falsely claimed that Ms. Anderson’s equity in a home she owned in Vail, Colorado was derived
from investor funds, when, in fact, Ms. Anderson used at least $400,000 of her personal funds to
initially purchase and improve the home, giving her a legitimate claim to the funds subject to the
asset freeze; and (ii) Mr. Anderson owed Ms. Anderson several hundred thousand dollars in
unpaid child support, alimony, rent, and other obligations, giving her a legitimate claim to the
frozen funds.

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The Court summarily rejects the second argument: that personal debts owed by Mr.
Anderson to Ms. Anderson give her a legitimate claim to investor funds that Mr. Anderson
improperly transferred to her. The Court previously identified that defect in the initial asset
freeze order (# 5 at 6) and the SEC raised that same issue in response to Ms. Anderson’s motion.
Ms. Anderson’s reply does not address that issue further. Accordingly, the Court finds that Ms.
Anderson has not come forward with any evidence that suggests that debts owed to her from Mr.
Anderson personally constitute a basis for modifying or dissolving the asset freeze.
As to Ms. Anderson’s arguments regarding her legitimate claim to equity in the Vail
home, Ms. Anderson repeats and amplifies those arguments in the more recent Emergency
Motion. For purposes of expediency, it thus suffices to deem that portion of the Motion to
Dissolve to be superseded by (and incorporated in, if necessary) the Emergency Motion.
Accordingly, the Court denies, without prejudice, the Motion to Dissolve.
B. The Emergency Motion
Ms. Anderson’s Emergency Motion raises a series of issues: (i) the asset freeze should be
modified to permit Ms. Anderson to expend at least $137,000 of the frozen funds to pay her
counsel so that he will continue representing her in this matter; (ii) that the SEC made certain
misrepresentations of fact in order to secure the asset freeze; (iii) that the SEC made particular
misrepresentations about Ms. Anderson’s acquisition of the Vail home; (iv) that the SEC
purposefully misstated the start date of Mr. Anderson’s misconduct in order to conceal the fact
that Ms. Anderson was actually another investor victim of Mr. Anderson, rather than a gratuitous
transferee of investor funds; (v) the SEC concealed certain facts about Mr. Anderson’s creation
and funding of the Foundation; and (vi) the SEC mislead the Court about Mr. Anderson’s alleged

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purchase of a life insurance policy with investor funds when, in fact, the policy was purchased by
Mr. Anderson in conjunction with marital dissolution proceedings many years earlier.
Putting aside Ms. Anderson’s contentions that the SEC purposefully misled the Court or
otherwise engaged in unethical conduct, the Emergency Motion can be understood to contest the
facts alleged by the SEC in its application for the asset freeze and relied upon by the Court in
granting that freeze. In that sense, the Court treats the motion as a delayed request for an
evidentiary hearing on whether or not the temporary asset freeze should remain in effect pending
further proceedings. Because the Court is unavailable to conduct that hearing on a sufficiently
timely basis, the Court will refer the matter to the Magistrate Judge to conduct an evidentiary
hearing and make a recommendation to the Court as to: (i) whether the ex parte asset freeze
initially granted by the Court should be continued as a preliminary injunction upon notice to Ms.
Anderson and the other Defendants in accordance with Fed. R. Civ. P. 65(a); and (ii) whether
any other requests for relief in Ms. Anderson’s Emergency Motion should be granted. Counsel
shall contact the Magistrate Judge’s chambers to schedule such a hearing or to take whatever
other action the Magistrate Judge deems appropriate to address those issues.
For the foregoing reasons, Ms. Anderson’s Motion to Dissolve (# 53) is DENIED
WITHOUT PREJUDICE as superseded. Ms. Anderson’s Emergency Motion (# 66) is
REFERRED to the Magistrate Judge for the purposes of conducting an evidentiary hearing and
to issue a recommendation as to whether the current asset freeze should be continued in the form

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of a preliminary injunction and to issue a recommendation as to whether any other forms of relief
requested by Ms. Anderson should be granted.
Dated this 19th day of August, 2019.
BY THE COURT:

Marcia S. Krieger
Senior United States District Judge

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