Securities and Exchange Commission v. Kinetic Investment Group, LLC et al

Filing 338

ORDER GRANTING 200 the Securities and Exchange Commission's Motion for Summary Judgment against Defendant Michael Scott Williams; DENYING AS MOOT 201 Defendant Michael Scott Williams' Motion for Judgment on the Pleadings; and DENYING 202 Defendant Michael Scott Williams' Motion for Summary Judgment. The amount Williams is to pay in disgorgement and prejudgment interest thereon is reserved until an evidentiary hearing can be held on the amount of damages. The Court also re serves on whether the SEC is entitled to a permanent injunction against Williams until the Parties have either briefed or presented argument on this issue at the evidentiary hearing on damages. The Court reserves jurisdiction to impose civil money penalties against Williams. The SEC may file an appropriate motion for civil penalties within 60 days of the entry of summary judgment in favor of the Commission. See Order for details. Signed by Judge Mary S. Scriven on 11/22/2024. (KBC)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.

Case No: 8:20-cv-394-MSS-SPF

KINETIC INVESTMENT GROUP,
LLC, and MICHAEL SCOTT
WILLIAMS,
Defendants, and
KINETIC FUNDS I, LLC,
KCL SERVICES, LLC d/b/a LENDACY,
SCIPIO, LLC,
LF42, LLC,
EL MORRO FINANCIAL GROUP, LLC, and
KIH, INC. f/k/a KINETIC INTERNATIONAL, LLC,
Relief Defendants.

ORDER
THIS CAUSE comes before the Court for consideration of Defendant Michael
Scott Williams’ Motion for Judgment on the Pleadings, (Dkt. 201), the response in
opposition thereto, (Dkt. 208), Plaintiff’s Motion for Summary Judgment against
Defendant Michael Scott Williams, (Dkt. 200), the response in opposition thereto,
(Dkt. 221), and Plaintiff’s Reply in Support of Motion for Summary Judgment. (Dkt.
227) The Court has also considered Defendant Michael Scott Williams’ Motion for
1

Summary Judgment, (Dkt. 202), the response in opposition thereto, (Dkt. 219), and
Defendant’s Reply in Support of his Motion for Summary Judgment. (Dkt. 228)
Upon consideration of all relevant filings, case law, and being otherwise fully
advised, the Court GRANTS Plaintiff’s Motion for Summary Judgment against
Defendant Michael Scott Williams, DENIES Defendant Michael Scott Williams’
Motion for Summary Judgment against Plaintiff, and DENIES AS MOOT Defendant
Michael Scott Williams’ Motion for Judgment on the Pleadings.
I.

BACKGROUND
On February 2, 2020, Plaintiff Securities Exchange Commission (“SEC”)

initiated this action against Defendants and Relief Defendants for violations of Section
10(b) and Rules 10b-5(a)-(c) of the Securities Exchange Act of 1934 (“Exchange
Act”) [15 U.S.C. § 78j(b) and 17 C.F.R. §§ 240.10b-5(a)-(c)] and Section 17(a)(1)-(3)
of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77q(a)(1)-(3)]
(collectively, the “Antifraud Provisions”). The SEC also alleges that the Defendants
violated Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940
(“Advisers Act”) [15 U.S.C. § 80b-6(1)-(2), (4)] and Rule 206(4)-8 thereunder [17
C.F.R. 275.206(4)-8], and that Defendant Michael Scott Williams (“Williams”), in the
alternative, aided and abetted violations of the Advisers Act under Section 209(d), 15
U.S.C. § 80b-9(d).
The SEC contends that since at least 2013, Defendant Williams and Defendant
Kinetic Investment Group, LLC (“Kinetic Group”) (collectively, the “Defendants”)

2

have raised at least $39 million from approximately 30 investors in an unregistered
securities offering. (Dkt. 200 at 8) According to the SEC, Defendants solicited
investors to invest in Relief Defendant Kinetic Funds I, LLC (“Kinetic Funds”), a
purported hedge fund managed by Defendants. (Id.) The SEC claims that Defendants
steered them toward Kinetic Funds’ largest sub-fund, Kinetic Funds Yield
(“KFYield”). (Id.) Defendants informed investors that their entire capital would be
invested in income-producing U.S. listed financial products and that their principal
would be secure because the KFYield portfolio would be hedged 1 with listed options.
(Id.)
The SEC contends that contrary to this representation, Defendants diverted a
substantial portion of KFYield investor capital to Relief Defendant KCL Services,
LLC d/b/a Lendacy (“Lendacy”), a private start-up company owned by Williams.
(Id.) Lendacy, however, was neither listed on a U.S. exchange nor capable of being
hedged with listed options. (Id.) The SEC asserts that Williams then directed Lendacy
to make purported loans using KFYield assets to himself, entities under his control,
and others. (Id.) Those other entities under his control included Relief Defendants
Scipio, LLC (“Scipio”), LF42, LLC (“LF42”), El Morro Financial Group, LLC (“El
Morro”), and KIH, Inc. f/k/a/ Kinetic International, LLC (“KIH”). (Dkt. 1 at ¶ 5)
Since at least 2015, the SEC claims that Williams, through his ownership,

“To hedge . . . is to take an offsetting position in an asset or investment that reduces the price risk
of an existing position. A hedge is therefore a trade that is made with the purpose of reducing the risk
of
adverse
price
movements
in
another
asset.” See
https://www.investopedia.com/terms/h/hedge.asp (last visited June 10, 2024)
1

3

control, and ultimate authority over Defendant Kinetic Group and the Relief
Defendants, misappropriated at least $6.3 million of Kinetic Funds’ assets, i.e.,
investor capital, to fund other business ventures and to pay for personal expenses. (Id.)
a. The Offering Materials and Securities Transactions
Beginning in 2012, Williams, through Kinetic Group, offered Kinetic Funds as
an investment opportunity for potential investors. (Dkt. 200 at ¶ 9) In 2016, Williams’
operation expanded from Florida to Puerto Rico, where a second office was opened,
and investors in Puerto Rico were then solicited to invest in Kinetic Funds. (Dkt. 200
at ¶ 20)
Kinetic Funds employs four investment strategies through sub-funds
characterized as yield, gold, growth, and inflation. (Id.; Dkt. 200-1 at ¶ 8) The yield
strategy, known as KFYield, has accounted for most (if not 98%) of Kinetic Funds’
equity investments since Kinetic Funds was formed in 2012, and it is the subject of this
lawsuit. (Dkt. 200-1 at ¶ 8; Dkt. 200 at ¶ 9)
Williams initially offered Kinetic Funds to his friends, partners, and associates.
(Dkt. 200 at ¶ 10) However, over time, Williams began to solicit additional investors
by using marketing brochures, websites, and referrals. (Id.) Williams did not utilize a
private placement memorandum to provide disclosures to potential investors. (Dkt.
220 at ¶ 4) 2

A private placement memorandum is an offering memorandum that provides potential investors with the
objectives,
risks,
and
terms
of
an
investment.
https://www.investopedia.com/terms/o/offeringmemorandum.asp#:~:text=An%20offering%20memorandu
m%2C%20also%20known,to%20understand%20the%20investment%20vehicle (last visited Feb. 23, 2024).
2

4

Instead, to understand how Kinetic Funds operated, investors received (1) a
copy of the Kinetic Funds Subscription Agreement (“Subscription Agreement”), (2)
either Exhibit “B-1” or “C-1” to the Kinetic Funds Operating Agreement (“Operating
Agreement”), which investors used to design the particular strategy they wanted to
invest in, (3) the Kinetic Funds Offering Questionnaire (“Offering Questionnaire”),
and (4) Kinetic Funds marketing brochures. (Dkt. 200 at ¶ 11; Dkt. 200-6) Some, if not
all, investors received a copy of the Operating Agreement. (Dkt. 200 at ¶ 12; Dkt. 20015 at 78:22-25) 3
Investors were classified as either Class B or Class C Members. (Dkt. 200-6 at
5-14) Class B Members signed Exhibit B-1 of Kinetic Funds’ Operating Agreement,
which was used prior to the creation of Exhibit C-1. (Dkt. 221-2 at ¶ 70; Dkt. 200-15
at 138:25) Class C Members signed Exhibit C-1 (Dkt. 221-2 at ¶ 71), which was created
for and executed by investors who had or would have a relationship with Lendacy,
Williams’ entity, in the future. (Dkt. 200-15 at 139:10-15) Some Class B Members may
have had a relationship with Lendacy but did not sign Exhibit C-1 because that
relationship would have preexisted the creation of Exhibit C-1. (Id. at 138:25-139:1-2)
Once Exhibit C-1 was created, however, investors who did not have a relationship
with Lendacy would exclusively sign Exhibit B-1. (Id. at 139:16-19)
As explained above, Lendacy provided lines of credit, i.e., loans, to accredited
investors. Williams claims that “as a service and benefit to Kinetic Funds’ investors,”

The Court cites to Williams’ deposition, (Dkt. 200-15), according to the page and line numbers provided by
the court reporter.

3

5

Kinetic Funds “worked with Lendacy to offer Kinetic Funds’ investors the ability to
borrow up to 70% of the value of their investment in Kinetic Funds at substantially
reduced interest rates to use however the investors might wish – e.g., to buy a home,
to invest in a business, to pay a debt, etc.” (Dkt. 221-2 at ¶ 136)
Exhibit C-1 to the Operating Agreement provides the following: “All Funds
may include a ‘Preferred Return’ investment. This investment is in a private sector
funding company that offers fixed[-]rate preferred interest returns . . . .” (Dkt. 220 at ¶
5) Exhibit C-1 does not identify the “preferred return investment” or the “private sector
funding company.” (Id. at ¶ 6) Exhibit C-1 does not identify Williams as the majority
owner of Lendacy and does not disclose that Williams or his entitles would receive
purported loans from Lendacy. (Id. at ¶¶ 7-8) Exhibit B-1 omits the Preferred Return
Provision entirely. (Id. at ¶ 9)
Exhibits B-1 and C-1 also provide that KFYield focuses on “income
generation,” that investors can make principal withdrawal requests under certain
conditions, and that an annual 1% management fee will be charged to the funds of
both Class B and Class C members. (Dkt. 200-6 at 6-8, 11-13)
Typically, when investing in Kinetic Funds, investors were required to complete
the Offering Questionnaire and sign both the Subscription Agreement and either
Exhibit B-1 or C-1 to the Operating Agreement. (Dkt. 200 at ¶ 16) The Subscription
Agreement provides that an investor “irrevocably subscribes for a membership
interest” in Kinetic Funds. (Id. at ¶ 17) Exhibits B-1 and C-1 state that an investor
agrees to invest in at least one of the Kinetic Funds investment strategies and that the
6

Class A Member “will have full and complete discretion to make any and all trading
decisions and affect any strategies as the Class A Member shall determine, in its sole
and absolute discretion, in order to manage the Funds.” (Id.) The Class A Member is
defined as Kinetic Partners, LLC, of which Williams is the managing member. (Dkt.
200-6 at 6, 11; Dkt. 200 at 9) Kinetic Partners, LLC was also a managing member of
Kinetic Funds. (Dkt. 200-13)
b. Williams’

Alleged

Misappropriation

of

Investor

Funds,

Misrepresentations and Omissions, Schemes to Defraud, and
Conflicts of Interest
Kinetic Funds’ BMO Harris Bank N.A. bank account held all the investor
capital. (Dkt. 200 at ¶ 38) The Commission claims that the account exclusively held
investor capital, (Dkt. 200 at ¶ 38), which Williams denies. (Dkt. 221 at 15) Williams
admits, however, that he kept a portion of investor capital in the Kinetic Funds’ bank
account and transferred the remainder to KFYield’s Interactive Brokers LLC (“IB”)
(“Brokerage Account”). (Dkt. 220 at ¶ 18)
Securities for KFYield were then purchased with a combination of investor
capital and margin, i.e., funds borrowed from its broker, IB. (Id. at ¶ 19) For example,
if an investor provided $1 million for investment in Kinetic Funds, $1 million worth
of securities would be purchased for that investor with a combination of cash and
portfolio margin. (Id. at ¶ 20)
Margin is a debt that carries interest. (Id. at ¶ 21) If Kinetic Funds’ Brokerage
Account fell below the minimum maintenance margin, then IB, at its sole discretion
7

could issue a margin call, i.e. require Kinetic Funds to put more cash into the
Brokerage Account, purchase more options, or liquidate some of its positions. (Id. at
22)
The Commission claims that Williams chose to purchase securities for the
KFYield portfolio with a mix of cash and margin so that investor assets left behind in
Kinetic Funds’ bank account could be directed to Lendacy and other private equity,
which Williams disputes. (Dkt. 200 at ¶ 41; Dkt. 221 at 15)
Williams created the investment strategy for Kinetic Funds, (Dkt. 220 at ¶ 23),
and controlled the Brokerage Account, including its operation and trading activity.
(Dkt. 200 at ¶ 42) IB only held greater authority than Williams with respect to closing
trades and with respect to any issues related to margin trading. (Dkt. 221 at 15)
Williams had ultimate authority over Kinetic Funds’ investment decisions, with the
assistance of Anadi Guar (“Guar”), to whom Williams delegated the duty of executing
day-to-day trades in accordance with Williams’ investment strategy. (Dkt. 200 at ¶ 42)
Williams, however, had the authority to fire Guar (Dkt. 200-15 at 71:24-25; 72:1,
86:21-22), and Guar reported to Williams. (Dkt. 200 at ¶ 42) Williams further had
control over Kinetic Funds’ bank account and controlled Lendacy’s two bank accounts
at BMO Harris Bank N.A. (Id. at ¶ 43)
The SEC alleges Williams engaged in the following misappropriations:
• Payoff of Relative’s Mortgage: In April 2015, Williams used $37,000 of
KFYield funds, routed to Lendacy, to pay off the mortgage on his
mother’s house. (Dkt. 200 at ¶ 44)
8

• Purchase of Real Property for Personal Use: In March 2017, Williams
purchased three luxury apartments and two parking spaces for himself in
San Juan, Puerto Rico, for $1,512,575.50 (Id. at ¶ 45) Williams used
KFYield funds, which had been diverted to Lendacy, to pay for the
properties. (Id.)
• Purchase of Commercial Property: In May 2018, Williams used at least
$2,755,000.00 of KFYield funds, routed to Lendacy in the form of a
Lendacy loan, to purchase a historic bank building in Old San Juan,
Puerto Rico, on behalf of his entity, Relief Defendant Scipio. (Id. at ¶ 47)
Williams titled the building in the name of his entity, Scipio. (Id.)
• Funding of Williams’ Other Companies: In April 2019, Williams used
$2,550,000.00 of additional KFYield funds in the form of two Lendacy
loans on behalf of his entity, Relief Defendant LF42, LLC (“LF42”), to
provide financial support to his outside business ventures. (Dkt. 200 at ¶
48) Those business ventures included: (1) the development of Relief
Defendant KIH, an international financial entity in Puerto Rico; (2) the
development of an international exchange in Puerto Rico; and (3) the
payment of more than $600,000 for a multi-day event to highlight and
introduce KIH to the public at a luxury hotel in Puerto Rico. (Id.)
The SEC claims that Williams engaged in the following additional devices,
schemes, and artifices to defraud: (1) Williams executed the loan agreements with

9

Lendacy after already purchasing the luxury apartments and parking spaces for his
personal use with investor assets; (2) Williams executed loan agreements with Lendacy
after he had already used investor assets to fund the development of KIH and the
international exchange, and to pay for the multi-day event; and (3) Williams purchased
securities for the KFYield portfolio on margin so he could divert investor capital to
Lendacy. (Dkt. 200 at ¶¶ 50-52) In addition, the SEC asserts that Williams papered a
promissory note to make it look as though the assets of LF42 funded ISX, LLC
(“ISX”), which was a technology company that Williams held a 40% interest in. (Id.
at ¶ 51) ISX created the software for the international exchange referenced above. (Id.)
However, according to the SEC, $2 million of investor assets, routed through Lendacy,
were transferred to ISX. (Id.)
The SEC next claims that Williams made multiple material misrepresentations
and/or omissions in the materials that investors received, which are broken down into
the following ten categories as follows:
• Lendacy’s Funding Source: First, Williams led prospective investors to
believe Lendacy had a separate funding source that would finance the
loan from Lendacy to the investor, and Williams led investors to believe
that their entire capital would be invested in KFYield. (Dkt. 200 at ¶ 26)
However, Williams instead used KFYield assets, not a separate funding
source, to fund Lendacy and the undisclosed loans that it made to
Williams and his entities. (Id. at ¶ 27)

10

• Williams’ Ownership of Lendacy: Second, Williams failed to disclose
to most investors that their assets would be invested “in a private sector
funding company that offers fixed-rate preferred interest returns” and
that the company was Lendacy, which was owned and controlled by
Williams. (Id. at ¶ 34)
• Income-producing U.S. Listed Financial Products: Third, contrary to
the representation made to investors, Williams did not invest all investor
funds in U.S.-listed financial products, and since at least 2013, Williams
diverted a substantial portion of investor capital to his entity, Lendacy.
(Dkt. 200 at ¶ 23)
• Secure Principal: Fourth, Williams advised investors that KFYield was
a conservative blended fund and that their principal would be secure
because the KFYield portfolio would be hedged with listed options. (Dkt.
220 at ¶ 13) However, Williams failed to hedge at least 90% of KFYield’s
portfolio using listed options. (Dkt. 200 at ¶ 25)
• Liquidity: Fifth, Williams claimed that KFYield assets had liquidity. (Id.
at ¶ 28) However, KFYield’s investment in Lendacy, which consisted of
unsecured loans primarily for the benefit of Williams, significantly
limited Kinetic Funds’ ability to honor redemption requests to all
investors equitably. (Id. at ¶ 29)
• Account Statements: Sixth, the known assets of Kinetic Funds were less
11

than the aggregate amount reflected on investor account statements. (Id.
at ¶ 30)
• Portfolio Performance: Seventh, KFYield’s reported performance to
investors did not match its actual performance. (Id. at ¶ 31)
• Margin: Eighth, Williams failed to disclose to investors what portion of
Kinetic Funds’ portfolio was margined. (Id. at ¶ 33)
• Williams’ Purported Loans: Ninth, Williams failed to disclose to
investors that he and his entities, Scipio and LF42, received purported
loans from Lendacy. (Id. at ¶ 35)
• Zephyr Aerospace: Tenth, Williams failed to disclose that he used at
least $497,300.00 of investor assets to invest in Zephyr Aerospace, a
private company that was not listed on a U.S. exchange. (Id. at ¶ 36)
The SEC contends that Williams engaged in at least three conflicts of interest
in failing to adhere to the promises made in the materials provided to investors. First,
Williams transferred at least $9.1 million of investor capital to Lendacy, an entity
owned by him. (Id. at ¶ 53). Second, Williams and two of his entities took at least $6.3
million in unsecured loans funded with investor assets. (Id. at ¶ 54) Third, between
January 2015 and October 2017, Williams used $30,872.44 of investor funds to pay
Silexx Financial Systems, LLC (“Silexx”), which is another company that Williams
partially owned and/or had a financial interest in. (Id. at ¶ 55)

12

c. Procedural History
When the SEC filed the instant Complaint (Dkt. 1) on February 2, 2020, it
simultaneously filed an Emergency Motion for Asset Freeze and Other Relief (Dkt. 2)
and an Emergency Motion for Appointment of Receiver. (Dkt. 3) A hearing was held
on March 6, 2020, in which United States District Court Judge William F. Jung
granted the Emergency Motion for Asset Freeze, freezing the assets of the Defendants
and Relief Defendants. (Dkt. 33) The Court found that the “SEC ha[d] made a
sufficient and proper showing in support of the relief granted herein by presenting a
prima facie case showing a reasonable approximation of the likely disgorgement award
against the Defendants and Relief Defendants, which exceeds the amount of assets to
be frozen.” (Id. at 2) The Court found that if it failed to impose an asset freeze,
“Defendants and Relief Defendants could dissipate, conceal, or transfer from the
jurisdiction of this Court assets that are likely subject to an Order of Disgorgement.”
(Id.)
The Court further granted the SEC’s Emergency Motion for an Appointment
of Receiver, finding that, “based on the record in these proceedings, the appointment
of a receiver in this action is necessary and appropriate for the purposes of marshaling
and preserving all assets of the Defendant Kinetic Group and the Relief Defendants
that: (a) are attributable to funds derived from investors or clients of the Defendant;
(b) are held in constructive trust for the Defendant; (c) were fraudulently transferred
by the Defendant; and/or (d) may otherwise be includable as assets of the estates of
the Defendant.” (Dkt. 34)
13

On May 28, 2020, the SEC filed a Motion for Entry of Judgment of Permanent
Injunction and Other Relief against Defendant Kinetic Group, LLC, and Relief
Defendants. (Dkt. 86) The Receiver consented to the motion. (Id.) The Court granted
the SEC’s Motion on November 5, 2020, and entered judgment in favor of the SEC
against the Defendant Kinetic Group and Relief Defendants. (Dkts. 151, 156)
On March 12, 2021, the SEC moved for summary judgment against Williams.
(Dkt. 200) Williams simultaneously filed a motion for judgment on the pleadings (Dkt.
201) and a separate cross-motion for summary judgment against the SEC. (Dkt. 202)
Both the SEC and Williams filed oppositions (Dkts. 219, 221) and replies in further
support of their respective motions for summary judgment. (Dkts. 227, 228) The SEC
also filed its opposition to Williams’ motion for judgment on the pleadings. (Dkt. 208)
All three motions are now ripe for review.
II.

STANDARD OF REVIEW
a. Motion for Judgment on the Pleadings
Pursuant to Federal Rule of Civil Procedure 12(c), a party may move for

judgment on the pleadings after the pleadings are closed. Fed R. Civ. P. 12(c). Rule
12(h)(2) permits the defense of failure to state a claim upon which relief can be granted
to be raised in a motion for judgment on the pleadings under Rule 12(c). Fed. R. Civ.
P. 12(h)(2). A motion under Rule 12(c) is “governed by the same standards as a motion
to dismiss under Rule 12(b)(6).” United States v. Bahr, 275 F.R.D. 339, 340 (M.D.
Ala. 2011). Thus, when evaluating a motion under Rule 12(c), the Court “accept[s]

14

the facts in the Complaint as true and view[s] them in the light most favorable to the
nonmoving party.” Ortega v. Christian, 85 F.3d 1521, 1524 (11th Cir. 1996).
“Judgment on the pleadings under Rule 12(c) is appropriate when there are no
material facts in dispute, and judgment may be rendered by considering the substance
of the pleadings and any judicially noticed facts.” Horsley v. Rivera, 292 F.3d 695, 700
(11th Cir. 2002) (citing Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370
(11th Cir. 1998)). “If upon reviewing the pleadings it is clear that the plaintiff would
not be entitled to relief under any set of facts that could be proved consistent with the
allegations, the court should dismiss the complaint.” Id. (citing White v. Lemacks, 183
F.3d 1253, 1255 (11th Cir. 1999)).
b. Motion for Summary Judgment
The Court must “grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); see also Waddell v. Valley Forge Dental Assocs.,
Inc., 276 F.3d 1275, 1279 (11th Cir. 2001) (explaining that “[s]ummary judgment is
proper if the pleadings, depositions, and affidavits show that there is no genuine issue
of material fact and that the moving party is entitled to judgment as a matter of law”).
For a factual dispute between the parties to defeat summary judgment, the factual
dispute must be “both genuine and material.” Miccosukee Tribe of Indians of Fla. v.
United States, 516 F.3d 1235, 1243 (11th Cir. 2008). A fact is material if it “affect[s]
the outcome of the suit under the governing law,” and is genuine “if a reasonable trier
of fact could return judgment for the non-moving party.” Id.
15

A court will “construe the facts and draw all inferences in the light most
favorable to the nonmoving party and when conflicts arise between the facts evidenced
by the parties, [the court will] credit the non[-]moving party’s version.” Davis v.
Williams, 451 F.3d 759, 763 (11th Cir. 2006). The role of the jury is to weigh the
evidence and determine credibility, “[t]herefore, if the determination of the case rests
on which competing version of the facts or events is true, the case should be submitted
to the trier of fact and the motion for summary judgment denied.” Hodgetts v. City of
Venice, Fla., 794 F. Supp. 2d 1265, 1271 (M.D. Fla. 2011).
A moving party discharges its burden on a motion for summary judgment by
pointing out to the Court that there is an absence of evidence to support the nonmoving party’s case. Denney v. City of Albany, 247 F.3d 1172, 1181 (11th Cir. 2001)
(citation omitted). When a moving party has discharged its burden, the non-moving
party must then designate specific facts (by its own affidavits, depositions, answers to
interrogatories, or admissions on file) that demonstrate there is a genuine issue for trial.
Porter v. Ray, 461 F.3d 1315, 1320-1321 (11th Cir. 2006) (citation omitted). The party
opposing a motion for summary judgment must rely on more than conclusory
statements or allegations unsupported by facts. Evers v. Gen. Motors Corp., 770 F.2d
984, 986 (11th Cir. 1985) (“conclusory allegations without specific supporting facts
have no probative value.”). “If a party fails to properly support an assertion of fact or
fails to properly address another party’s assertion of fact . . . the court may grant
summary judgment if the motion and supporting materials . . . show that the movant
is entitled to it.” Fed. R. Civ. P. 56(e).
16

Cross motions for summary judgment do not change the standard. Westport
Ins. Corp. v. VN Hotel Grp., LLC, 761 F. Supp. 2d 1337, 1341 (M.D. Fla.
2010) (citing Latin Am. Music Co. v. Archdiocese of San Juan of Roman Catholic &
Apostolic Church, 499 F.3d 32, 38 (1st Cir. 2007)). Rather, “[c]ross-motions must be
considered separately, as each movant bears the burden of establishing that no genuine
issue of material fact exists and that it is entitled to judgment as a matter of law.” Shaw
Constructors v. ICF Kaiser Eng'rs, Inc., 395 F.3d 533, 538-39 (5th Cir. 2004).
III.
A.

DISCUSSION
DEFENDANT’S MOTION FOR JUDGMENT ON THE PLEADINGS

Williams argues that the Complaint should be dismissed because the SEC has
failed to satisfy Rule 9(b)’s heightened pleading standard. (Dkt. 201) Williams also
contends that the SEC has failed to state a claim upon which relief may be granted
because the SEC has not properly alleged the specific statutory elements for the counts
at issue. Last, Williams asserts that the Complaint should be dismissed with prejudice
because the deadline to amend pleadings has passed, and the SEC “elected not to
amend its Complaint before the deadline.” (Dkt. 201 at 2)
“Under Federal Rule of Civil Procedure 12(c), a court has the discretion to
convert a motion for judgment on the pleadings into a motion for summary judgment
and proceed under Rule 56, so long as the nonmoving party is given notice and an
opportunity to respond.” Hagerman v. Cobb County, Ga., 2008 U.S. Dist. LEXIS
24972 at *7 (N.D. Ga. Mar. 28, 2008) (quoting Fed. R. Civ. P. 12(c)). However, here
there is no need to convert the motion to one for summary judgment because the
17

summary judgment motion has been filed along with the motion for judgment on the
pleadings. Id.
As such, the Court will only consider the motions for summary judgment,
which were filed “following the conclusion of the discovery period.” Id. “In short,
while inadequacies may have existed in the allegations set out in the Complaint and
while these inadequacies may support the motion for judgment on the pleadings, the
Court does not address them, but instead looks to the undisputed facts in the record to
determine whether summary judgment is warranted” for either the SEC or for
Williams. See id.
B.

THE MOTIONS FOR SUMMARY JUDGMENT

While the Court considers each motion separately and on its own merits, the
Parties offer nearly identical arguments in support of their respective motions and
in response to the opposing party’s motion. As such, the Court proceeds by analyzing
the motions together.
1.

DEFENDANT’S EVIDENTIARY OBJECTIONS TO THE

DECLARATIONS OF CRYSTAL IVORY
Defendant objects to the SEC’s reliance on the Declarations of Crystal C. Ivory,
a Certified Public Accountant (“CPA”) employed as a Senior Staff Accountant by the
SEC. The SEC first filed Ms. Ivory’s Declaration in support of its motion for summary
judgment against Williams. (Dkt. 200-24, “Declaration One”) The SEC then filed

18

another Declaration from Ms. Ivory in support of its opposition to Williams’ motion
for summary judgment. (Dkt. 219-2, “Declaration Two”)
In both Declarations, Ms. Ivory purports to provide support for the SEC’s claim
that

Williams

misappropriated

investor

funds

and

engaged

in

multiple

misrepresentations and omissions. Williams argues that the Court should exclude both
Declarations

from consideration

because they are hearsay and rely on

hearsay/unauthenticated documents. (Dkt. 221; Dkt. 221-1; Dkt. 228 at 6-7)
Furthermore, Williams explains that Ms. Ivory has not been identified as an expert
witness. (Dkt. 221; Dkt. 221-1; Dkt. 228 at 6-7) Upon review, the Court concludes that
both Declarations may be used, in part, for purposes of resolving the motion for
summary judgment.
In support of Declaration One, Ms. Ivory reviewed the following documents:
(a) the bank account statements for Kinetic Funds and Lendacy from the period of
January 2015 through October 2019; (b) a copy of a spreadsheet entitled “Copy of
Monthly transactions – Kinetic Funds I, LLC,” produced to the SEC in November
2019; (c) a report from Lendacy as of October 2019 reflecting outstanding purported
loans and amounts, which was produced to the SEC in October 2019; (d) an Activity
Statement from IB regarding Kinetic Funds’ Master account, produced to the SEC in
December 2019; (e) investor statements as of January 2019, produced to the SEC in
May 2019; and (f) a printed spreadsheet showing transfers made to Williams or
Williams’ entities, produced to the SEC on May 20, 2019. (Dkt. 200-24 at ¶ 4)
As explained in Declaration One, Ms. Ivory’s analysis of these materials
19

allowed her to: (1) determine the total cash held in the bank accounts of Kinetic Funds
and Lendacy, as well as the total outstanding Lendacy loan balance as of October
2019; (2) determine the total net asset value for Kinetic Funds’ brokerage account, IB,
as of October 2019; (3) determine the total number of investors and investor proceeds
received by Kinetic Funds from January 2013 through October 2019, and Williams’
total investment into Kinetic Funds; (4) determine the percentage of investor assets
held in KFYield fund; (5) identify and determine the total amount of funds transferred
from Kinetic Funds to Lendacy; (6) identify and determine the total payments made
to Silexx between January 2015 and October 2017; (7) identify and determine the total
payments made to an individual named Margery J. King, a relative of Williams; and
(8) trace and agree a list of specified transactions to Kinetic Funds or Lendacy bank
records. (Id. at ¶ 3)
In Declaration Two, Ms. Ivory reviewed the same bank account statements
referenced above for Kinetic Funds and Lendacy from the period of January 2015
through October 2019. (Dkt. 219-2 at ¶ 4) Ms. Ivory’s analysis of these materials
allowed her to: (1) identify and determine the source of funds into the Kinetic Funds
and Lendacy bank accounts between January 2015 and September 2019; (2) identify
and determine the total funds received from IB between January 2015 and September
2019 and the last payment received into Kinetic Funds and/or Lendacy bank accounts
from IB; (3) identify and determine the total Lendacy credit line draws to investors
between November 2016 and September 2019; and (4) identify and determine the total
net payments to Kinetic Group from Kinetic Funds and Lendacy bank accounts
20

between January 2015 and September 2019.
a.

MS. IVORY’S DECLARATIONS ARE NOT HEARSAY.

To the extent Williams urges the Court to ignore Ms. Ivory’s Declarations on
the basis of hearsay, the Court finds that argument unpersuasive. The general rule is
that “inadmissible hearsay cannot be considered on a motion for summary judgment.”
Macuba v. Deboer, 193 F.3d 1316, 1322 (11th Cir. 1999). However, the Eleventh
Circuit has “restated the general rule to hold that a district court may consider a
hearsay statement in passing on a motion for summary judgment if the statement could
be reduced to admissible evidence at trial or reduced to admissible form.” Id. The
phrases “reduced to admissible evidence at trial” and “reduced to admissible form”
have been used “to explain that the out-of-court statement made to the witness (the
Rule 56(c) affiant or the deposition deponent) must be admissible at trial for some
purpose.” Id. (explaining that the statement “might be admissible because it falls
within an exception to the hearsay rule, or does not constitute hearsay at all (because
it is not offered to prove the truth of the matter asserted), or is used solely for
impeachment purposes (and not as a substantive defense)”).
Here, the bank records relied upon by Ms. Ivory, even if hearsay, could likely
be “reduced to admissible form” at trial. See id. The SEC could offer testimony or
other evidence establishing that Kinetic Funds’ bank account, Lendacy’s bank
account, and IB’s brokerage account statement fall within the business records
exception to the hearsay rule; the SEC can call Williams to testify about the
21

transactions the records reflect 4; or the SEC may do both. See Conservit, Inc. v. Global
Mill Supply, Inc., No. 1:19-cv-274-ELR, 2023 U.S. Dist. LEXIS 58778 at *7 n.8 (N.D.
Ga. Jan. 5, 2023) (assuming without deciding that the defendant’s corporation’s bank
records are hearsay, but concluding that Plaintiff could likely “reduce [them] to
admissible form” at trial by offering testimony or other evidence establishing that the
[defendant corporation’s] bank records fall within the business records exception to
the hearsay rule, calling either of the [defendants] to testify about the transactions the
records reflect, or both”).
The other documents relied upon by Ms. Ivory can also be “reduced to
admissible form” at trial. See Macuba, 193 F.3d at 1322. As both Lendacy and El
Morro Financial are Williams’ entities, the SEC can call Williams to testify about the
Lendacy report reflecting outstanding purported loans and amounts as of October
2019, (Dkt. 200-24 at 15), as well as the Investor Statements from Kinetic Group,
which were generated by Relief Defendant El Morro Financial, (Dkt. 200-25 at 31-40;
Dkt. 200-26 at 1-26). See Conservit, Inc., 2023 U.S. Dist. LEXIS 58778 at *7 n.8. The
“KF Transactions” spreadsheet, which provided the monthly transactions of Kinetic
Funds as of November 21, 2019, was created by Ms. Locke, whom the SEC can also
call to testify about the document. (Dkt. 200-24 at 8-13)

In Williams’ Responses to the SEC’s First Request for Admissions, Williams contends that he did not control
Lendacy, but was simply “a majority owner of, and a passive investor in, Lendacy.” (Dkt. 200-14 at ¶ 5) Williams
claims that Kelly Locke, the president of Lendacy, “managed and operated Lendacy independently from, and
without any involvement of, [Williams].” (Id.) Even if true, the SEC can call Ms. Locke to testify about the
Lendacy report reflecting the outstanding purported loans and amounts as of October 2019.
4

22

Ultimately, however, Ms. Ivory’s Declarations can be reduced to non-hearsay
form at trial by calling Ms. Ivory herself to testify. See Smith v. LePage, 834 F.3d 1285,
1296 n.6 (11th Cir. 2016) (noting that one way to reduce hearsay to admissible form is
to have “the hearsay declarant testify directly to the matter at trial” (quoting Jones v.
UPS Ground Freight, 683 F.3d 1283, 1293-94 (11th Cir. 2012))). As such, the Court
does not find that Ms. Ivory’s Declarations should be excluded on the basis of hearsay.
b.
WHETHER MS. IVORY’S DECLARATIONS WERE EXPERT
REPORTS.
Declaration One is separated into four sections of analysis: (1) Asset Balances
of Kinetic Funds and Lendacy as of October 2019; (2) Investors and Investor proceeds;
(3) Transfers and Payments; and (4) Specified Transactions. (Dkt. 200-24 at ¶¶ 5-14)
Declaration Two is similarly separated into four sections of analysis: (1) Source of
Funds; (2) Receipts from IB; (3) Lendacy Credit Line Draws; and (4) Net Payments
made to Kinetic Group. (Dkt. 219-2 at ¶¶ 5-10)
Federal Rule of Evidence 1006 provides that “[t]he contents of voluminous
writings, recordings, or photographs which cannot conveniently be examined in court
may be presented in the form of a chart, summary or calculation.” Fed. R. Evid. 1006.
When a chart or summary of evidence “does not contain complicated calculations
requiring the need of an expert for accuracy, no special expertise is required in
presenting the chart,” and thus a lay witness may establish the foundation for
admission of the summary evidence under Rule 1006. United States v. Jennings, 724
F.2d 436, 442 (5th Cir. 1984).
23

In both Declarations, Ms. Ivory performed calculations that did not require
expertise. For example, in Declaration One, in the first section entitled “Asset
Balances,” she added numbers together to determine the total assets of Kinetic Funds
and Lendacy from numbers that were provided to her through bank statements and a
Lendacy report showing total outstanding loans. (Dkt. 200-24 at ¶¶ 5-8) In the second
section entitled “Investors and Investor Proceeds,” Ms. Ivory determined the total
number of investor proceeds by adding together each investor’s contribution to the
KFYield fund. (Id. at ¶¶ 9-10) In the third section entitled “Transfers and Payments,”
she reviewed the bank statements of Kinetic Funds and Lendacy to determine how
much money was sent to Lendacy from Kinetic Funds and vice versa, and then
subtracted those numbers to determine the net amount of money transferred from the
Kinetic Funds’ bank account to the Lendacy bank accounts. (Id. at ¶ 11) Further, she
reviewed Kinetic Funds’ bank statement and determined that $30,872 was paid to
Silexx by adding each check amount made to Silexx from Kinetic Funds. (Id. at ¶ 12)
In Declaration Two, Ms. Ivory performed similar calculations involving
division, addition, and subtraction of numbers. (Dkt. 219-2 at ¶¶ 5-10) In both
Declarations, she provided a summary or a chart in support of her findings. None of
these calculations required a level of expertise reserved solely for a CPA. See SEC v.
Seghers, 298 F. App’x 319, 326 (5th Cir. 2008) (finding that witness providing
summary testimony “[need not] be qualified as an expert because the production of
the chart required her only to add values listed on various statements and divide the
totals to calculate a percentage”); see also United States v. Milkiewicz, 470 F.3d 390,
24

401 (1st Cir. 2006) (finding that summarizing the financial information contained in
the charts, including invoices, checks, and other documents “took patience but not
expertise”).
However, with respect to section four in Declaration One, regarding “Specified
Transactions,” the Court finds that Ms. Ivory should have been identified as an expert
in order to permit her to trace and reconcile a list of specified transactions to the bank
records of Kinetic Funds and Lendacy. (Dkt. 200-24 at ¶ 14) In any event, as described
below, Mr. Williams admits to having received loans from Lendacy on behalf of
himself and his entities in the precise (or near exact) amounts noted by Ms. Ivory.
Thus, the Court need not, and does not, consider this portion of Ms. Ivory’s
Declaration for purposes of resolving the SEC’s motion for summary judgment.
Federal Rule of Civil Procedure 26 requires that “[a] party must make [expert
witness] disclosures at the times and in the sequence the court orders.” Fed. R. Civ. P.
26(a)(2)(D). In order to make a proper disclosure, parties must, by the deadline,
disclose the identity of their experts “accompanied by a written report.” Fed. R. Civ.
P. 26(a)(2)(B). This written report “must contain a complete statement of all opinions
the witness will express and the basis and reasons for them” and “the facts or data
considered by the witness in forming them.” Fed. R. Civ. P. 26(a)(2)(B)(i)—(ii). If a
party violates Rule 26(a), Rule 37(c) provides for the exclusion of the expert evidence
“unless the failure was substantially justified or is harmless.” Fed. R. Civ. P.
37(c)(1); see also OFS Fitel, LLC v. Epstein, Becker, and Green, P.C., 549 F.3d 1344,
1363 (11th Cir. 2008) (“Under Rule 37(c)(1), a district court clearly has authority to
25

exclude an expert’s testimony where a party has failed to comply with Rule
26(a) unless the failure is substantially justified or harmless.”).
“Substantially justified” for Rule 37(c)(1) means “reasonable people could
differ as to the appropriateness of the contested action.” Griffin v. United States, No.
3:19-cv-441-MMH-PDB, 2021 U.S. Dist. LEXIS 144928 at * 42 (M.D. Fla. June 25,
2021) (citations omitted). As for the definition of “harmless,” “[t]he meaning of
‘harmlessness’ for Rule 37(c)(1) is unsettled in the Eleventh Circuit.” Treminio v.
Crowley Mar. Corp., No. 3:22-cv-174-CRK, 2023 U.S. Dist. LEXIS 209411 at *10
(M.D. Fla. Nov. 22, 2023) (citations omitted). Notably, in Crawford v. ITW Food
Equip. Grp., LLC, 977 F.3d 1331, 1342-43, 1353-54 (11th Cir. 2020), a majority of the
court declined to decide the meaning of “harmless” for Rule 37(c)(1), “while a
dissenting judge expressed the view that, considering the purpose of the disclosure and
supplementation rules and the advisory committee notes to Rule 37(c)(1), noncompliance with those rules is harmless only if the non-compliance was a mistake and
the information was already known to the opposing party.” Griffin, 2021 U.S. Dist.
LEXIS 144928 at *42 (citation omitted). However, “other circuits continue to apply
pre-Rule 37(c)(1), judicially created, non-exhaustive factors to determine substantial
justification or harmlessness. Those factors are the explanation for the failure, the
importance of the witness’s testimony, the need for time to prepare to respond to the
testimony, and the possibility of a continuance.” Id. at *42-43 (citing Murphy v.
Magnolia Elec. Power Ass’n, 639 F.2d 232, 235 (5th Cir. 1981); accord Alimenta
(U.S.A.), Inc. v. Anheuser-Busch Cos., Inc., 803 F.2d 1160, 1163 (11th Cir. 1986)).
26

Although the Eleventh Circuit has not provided a clear definition of “harmless,” courts
within the Middle District of Florida have found that a harmless failure to disclose
exists “when there is no prejudice to the party entitled to receive the
disclosure.” Baldeo, 2014 U.S. Dist. LEXIS at *8 (quoting Hewitt v. Liberty Mut.
Group, Inc., 268 F.R.D. 681, 683 (M.D. Fla. 2010)).
Here, using the bank account statements from Kinetic Funds and Lendacy, and
based on a review of a spreadsheet showing a list of transfers made to Williams and
his entities, Ms. Ivory states that she was able to “trace and agree approximately $6.3
million in transfers to bank records.” (Dkt. 200-24 at ¶ 14) She states that she used
transaction details such as the transaction date, amount, payee, and transaction type
(e.g., wire, internal transfer, etc.) in order to trace and agree the transfers to the bank
records. (Id.) Specifically, the records demonstrated that on March 23, 2017, Lendacy
wire transferred $1,512,575.50 to Williams so that he could purchase three luxury
apartments and two parking spaces. (Dkt. 200-24 at 6) On May 4, 2018, Lendacy wire
transferred $2,755,000.00 to Williams’ entity, Scipio, in order for Williams to purchase
a historic bank building in Old San Juan, Puerto Rico. (Id.) In April 2019, Lendacy
transferred another $2,550,000.00 to LF42, another of Williams’ entities, in order for
LF42 to pay Williams’ other entities, El Morro and KIH, for general operating
expenses, to fund start-up costs for KIH, and to partially fund a multi-day launch event
for KIH. (Id.; see also Dkt. 200 at ¶¶ 6-8)
Having conducted a tracing analysis, Ms. Ivory acted as an expert, and thus she
should have been identified as such. See FTC v. Am. Precious Metals, LLC, 726 Fed.
27

App’x 729, 733 (11th Cir. 2018) (finding that an independent forensic accountant was
acting as an expert when “she conducted a tracing analysis” to determine whether the
defendant used any fraudulently obtained funds to pay his mortgage or other expenses
related to his home). 5 Further, the SEC, as the party facing the sanction of exclusion
of its purported expert’s report, does not explain how its failure to disclose Ms. Ivory
as an expert was “substantially justified” or “harmless.” See Crawford, 977 F.3d at
1356 (noting that “the burden is on the rule-breaking party to” “show harmlessness”
or “substantial justification”) (citations omitted). Thus, the Court declines to consider
this portion of Ms. Ivory’s report for purposes of resolving the SEC’s motion for
summary judgment.
Instead, the Court relies on Williams’ Declaration, wherein he devotes fortyone (41) paragraphs, in a section entitled “Williams’ Lendacy loans,” admitting to
having received loans from Lendacy on behalf of himself and his entities in the precise
(or near exact) amounts noted by Ms. Ivory. (See Dkt. 221-2 at ¶¶ 169-210) As
explained below, it is clear that the crux of Williams’ dispute is not that Lendacy did
not provide loans to him and his entities, but rather his belief that investor assets were
not used to fund the loans he and his entities received. However, as will be explained
in the following section, that argument fails.

The Court notes that “[a]lthough an unpublished opinion is not binding on this court, it is persuasive
authority. See 11th Cir. R. 36-2.” United States v. Futrell, 209 F.3d 1286, 1289 (11th Cir. 2000).
5

28

2.

COUNTS I, II, III, IV, V, AND VI – THE ANTIFRAUD

PROVISIONS OF THE SECURITIES ACT AND THE EXCHANGE ACT
The SEC seeks summary judgment as to William’s liability for violations of the
Antifraud Provisions (Counts I – VI) and violations of Sections 206 and 209(d) of the
Advisers Act (Counts VII-XIV). (Dkt. 200) In his cross-motion, Williams argues that
he is entitled to summary judgment on each count because the SEC cannot establish
any of the elements necessary for these violations. (Dkt. 202)
Williams’ liability under Section 206 and 209(d) of the Advisers Act turns in
part on his liability under § 17(a)(1) and (3) of the Exchange Act. See Steadman v.
SEC, 603 F.2d 1126, 1134 (5th Cir. 1979) (“Steadman I”) (noting that the language of
§ 206 of the Advisers Act is drawn from § 17(a)(1) and (3) of the Exchange Act). 6 Thus,
the Court will address the SEC’s claims under Section 17(a) of the Securities
Act and Rule 10b-5 of the Exchange Act’s implementing regulations before addressing
its claims under the Advisers Act.
a.
VIOLATIONS OF THE ANTIFRAUD PROVISIONS (COUNTS I
– VI)
Section 17(a) of the Securities Act prohibits the offer or sale of securities by use
of interstate commerce:
(1) to employ any device, scheme, or artifice to defraud;
(2) to obtain money or property using any untrue statement
of a material fact or any omission to state a material fact
See Bonner v. City of Prichard, Ala., 661 F.2d 1206, 1207 (11th Cir.1981) (adopting as binding
precedent all decisions of the former Fifth Circuit issued on or before September 30, 1981).
6

29

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.
15 U.S.C. § 77q(a)(1)-(3).
Section 10(b) of the Exchange Act renders it “unlawful for any person . . . [t]o
use or employ, in connection with the purchase or sale of any security . . . any
manipulative or deceptive device or contrivance in contravention of such rules and
regulations as the [SEC] may prescribe. . . .” 15 U.S.C. § 78j(b). Pursuant to this grant
of authority, the SEC issued 17 CFR § 240.10b-5 (“Rule 10b-5”), which prohibits, in
connection with the purchase or sale of any security, the use of interstate commerce:
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a 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.
17 C.F.R. § 240.10b-5.
There is “considerable overlap among the subsections of the Rule and related
provisions of the securities laws”—i.e., they prohibit some of the same
conduct. Lorenzo v. S.E.C., 139 S. Ct. 1094, 1102, 203 L. Ed. 2d 484 (2019). See SEC
v. Spence & Green Chem. Co., 612 F.2d 896, 903 (5th Cir. 1980) (“[T]he proscriptions

30

of section 17(a) are substantially the same of those of section 10(b) and rule 10b-5.”). 7
Thus, Section 17(a) and Rule 10b-5 should be analyzed as one.
However, there are a few notable distinctions between Section 17(a) and Rule
10b-5 that courts have recognized. For example, for claims under Section
17(a)(1) and Rule 10b-5, the SEC must establish a defendant acted with
scienter. S.E.C. v. Merch. Cap., LLC, 483 F.3d 747, 766 (11th Cir. 2007). But for
claims under Sections 17(a)(2) and (3), the SEC need only demonstrate negligence.
Id. And unlike the other subsections, “Rule 10b-5(b) and Section 17(a)(2) specifically
require misrepresentation.” SEC v. Complete Bus. Sols. Grp., Inc., No. 20-cv-81205RAR, 538 F. Supp. 3d 1309, 1329 (S.D. Fla. May 11, 2021). Notably, however, “Rule
10b-5(b)—but not § 17(a)(2)—requires that the defendant be the ‘maker’ of
the misrepresentation or omission, meaning the defendant has ‘ultimate authority over
the statement, including its content and whether and how to communicate it.’” Id.
(first quoting Janus Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142,
(2011); and then citing United States SEC v. Big Apple Consulting USA, Inc., 783
F.3d 786, 797 (11th Cir. 2015) (holding that Section 17(a)(2) cannot be read to include
the “maker” restriction present in Rule 10b—5(b)).
Courts typically analyze the first and third prongs of Section 17(a) and Rule
10b-5 together and refer to them as “scheme liability.” See SEC v. Mueller, No. SA21-CV-00785-XR, 2024 U.S. Dist. LEXIS 7012 at *21 (W.D. Tex. Jan. 11, 2024);

See Bonner v. City of Prichard, Ala., 661 F.2d 1206, 1207 (11th Cir.1981) (adopting as binding
precedent all decisions of the former Fifth Circuit issued on or before September 30, 1981).
7

31

United States SEC v. Herrera, No. 17-20301-CIV-LENARD/GOODMAN, 2018
U.S. Dist. LEXIS 244477 at *17 (S.D. Fla. Apr. 11, 2018) (addressing claims
under Section 17(a)(1) and (3) and Rule 10b-5(a) and (c) together); SEC v. Wealth
Strategy Partners, LC, No. 8:14—cv—02427—T—27TGW, 2015 U.S. Dist. LEXIS
73068 at *19 (M.D. Fla. June 5, 2015) (same). See SEC v. Rio Tinto PLC, 41 F.4th
47, 48 (2nd Cir. 2022) (analyzing claims for scheme liability under Section
17(a)(1) and (3) of the Securities Act and Rule 10b-5(a) and (c) of the Exchange Act
together); see also Happy Tax Franchising LLC v. Hill, 2023 U.S. Dist. LEXIS 2711
at *30 (S.D. Fla. Jan. 5, 2023). As the court in Mueller recognized:
Traditionally, scheme liability has ‘hinge[d] on the
performance of an inherently deceptive act that is distinct
from an alleged misstatement.’ SEC v. Farmer, No. 4:14CV-2345, 2015 U.S. Dist. LEXIS 136702, 2015 WL
5838867, at *14 (S.D. Tex. Oct. 7, 2015)
...
The Supreme Court recently clarified, however, that the
knowing dissemination of misrepresentations with an
intent
to
deceive
violates
Rule
10b5(a) and (c) and Section 17(a)(1). Lorenzo v. SEC, 139 S.
Ct. at 1100-02 (holding that these provisions ‘capture a wide
range of conduct,’ including the ‘dissemination of false or
misleading material’); see also Malouf v. SEC, 933 F.3d
1248, 1260 (10th Cir. 2019) (finding that Lorenzo also
controls Section 17(a)(3) because this provision ‘is
virtually identical to Rule10b-5(c), which Lorenzo did
address’). As the Second Circuit aptly summarized,
‘misstatements and omissions can form part of a scheme
liability claim, but an actionable scheme liability claim also
requires something beyond misstatements and omissions,
such as dissemination.’ Rio Tinto, 41 F.4th 47, 48 (2nd Cir.
2022) (emphasis in original).
Mueller, 2024 U.S. Dist. LEXIS 7012 at *22-23 (emphasis added).
32

Because Williams’ knowing dissemination of misleading materials with an
intent to deceive can form part of the scheme liability analysis, the Court deems it
prudent to analyze each category of misstatements and omissions under Rule 10b-5(b)
and under Section 17(a)(2) before reaching the SEC’s claims for scheme liability under
Rule 10b-5(a) and (c) and Sections 17(a)(1) and (3). See Mueller, 2024 U.S. Dist.
LEXIS 7012 at *23.
b.
MATERIAL MISREPRESENTATIONS AND OMISSIONS IN
VIOLATION OF SECTION 17(A)(2) AND RULE 10B-5(B) (COUNTS
II, V)
To establish a violation of § 17(a)(2) (Count II), the SEC must demonstrate (1)
a material misrepresentation or materially misleading omission (2) in the offer or sale
of a security, (3) made with negligence. SEC v. Morgan Keegan & Co., 678 F.3d 1233,
1244 (11th Cir. 2012). To establish a violation of § 10(b) or Rule 10b-5 (Count V), the
SEC must show (1) a material misrepresentation or materially misleading omission
(2) in connection with the purchase or sale of a security, (3) made with scienter. Id.
Both violations also require proof of an interstate commerce or mails element. More
specifically, under the Exchange Act, the SEC must demonstrate that Williams used
the mails, an instrumentality of interstate commerce, or the facility of a national
securities exchange in connection with the violation. See 15 U.S.C. § 78j(b). Similarly,
the Securities Act contains as an element a requirement that a defendant have
employed the mails or an instrumentality of interstate commerce in connection
with the violation. See 15 U.S.C. § 77q(a). The Parties dispute each element of both
33

statutes.
The Court begins with the first element under each statute, which concerns
whether Williams made materially misleading statements or omissions. The SEC
claims that there is no genuine dispute of material fact that Williams made material
misrepresentations and omissions in the Offering Documents. (Dkt. 200 at 30-32) In
opposition to the SEC’s motion, Williams not only disputes the materiality of each
category of statements and omissions but also whether the SEC’s alleged
misrepresentations and omissions exist in the first instance. (Dkt. 221 at 23-24)
Similarly, in Williams’ motion for summary judgment, he argues that he did not make
any “oral” misrepresentations and omissions to investors. (Dkt. 202 at 15-17)
As an initial matter, the plain text of § 17(a)(2) and Rule 10b-5(b) do not
differentiate between written or oral misrepresentations and omissions. See § 17(a)(2),
Rule 10b-5(b). Williams also points to no authority stating that a misrepresentation or
omission can only be made orally. (See Dkt. 202 at 15-17) As such, the Court proceeds
by analyzing whether Williams made any material misrepresentations and omissions
to investors, whether written or oral.
(1)
WILLIAMS’ MATERIAL MISREPRESENTATIONS
AND OMISSIONS
“The test for materiality in the securities fraud context is ‘whether a reasonable
man would attach importance to the fact misrepresented or omitted in determining his
course of action.’” SEC v. Merchant Capital, LLC, 483 F.3d 747, 766 (11th Cir. 2007)
(first quoting SEC v. Carriba Air, 681 F.2d 1318, 1323 (11th Cir. 1982); and then
34

citing TSC Indus. v. Northway, 426 U.S. 438, 449, 96 S. Ct. 2126, 2132, 48 L. Ed. 2d
757 (1976)). “The role of the materiality inquiry is ‘to filter out essentially useless
information that a reasonable investor would not consider significant, even as part of
a larger ‘mix’ of factors to consider in making his investment decision.’” SEC v.
Radius Capital Corp., No. 2:11-cv-116-FtM-29DNF, 2013 U.S. Dist. LEXIS 10316 at
*15 (M.D. Fla. Jan. 24, 2013) (citations omitted).
(a)
CATEGORY ONE: LENDACY’S FUNDING
SOURCE
The SEC contends that Williams led prospective investors to believe Lendacy
had a separate funding source that would finance the loan from Lendacy to the
investor and, further, that he led prospective investors to believe that their entire capital
would be invested in KFYield. (Dkt. 200 at 30) For support, the SEC points to the
Lendacy brochure given to investors, which states: “[y]ou keep 100% of your capital
working, generating dividends and interest with the opportunity for continued
appreciation.” (Dkt. 200-48 at 19)
The Court finds that this representation was false. The SEC first points to the
deposition of Ms. Locke, who testified that investors were unaware that their own
capital was being used to fund Lendacy. Ms. Locke stated as follows:
So if you are an investor in Kinetic Funds, you were able to
receive a credit line for up to 70 percent of your investment
value, your current market value in the form of a revolving
credit line from [Lendacy] services. I understood from
Michael when I asked how does [an investor receiving
credit line] work – from Michael Williams – that Kinetic
had a private equity placement into [Lendacy] and had
identified [Lendacy] as an investment opportunity that
35

would generate income and generate a return for Kinetic
investors. The reality of what was happening was, that the
investor capital would come into the fund, Lendacy had no
source of income on its own, so the only way that you
could fund a loan to the investors would be to transfer their
investment capital over to the Lendacy entity and wire their
investment out back to them in the form of a loan. It was
not my understanding that any of the investors were aware
that they were being lent their own capital back. They were
told that a hundred percent of their investment would
remain invested in the KF Yield Fund generating income,
assets protected using US listed options and that an
unsecured credit line was administered to them by . . .
Lendacy, but in actuality, it was their own investment
being sent back out to them at – and being charged
interest.
(Dkt. 200-20 at 5:24-25; 6:3-24) (emphasis added).
The SEC further highlights Ms. Locke’s deposition testimony, in which she
describes the marketing materials investors received, which led them to believe that
their entire capital would be invested in KFYield:
Q Okay. And the bottom of - - not the bottom, the product
section of this page here, page 2 of the brochure. The last
sentence of the first paragraph of the product section it states
that all products are listed under US exchanges.
A Correct.
Q And that was -- that was a statement made to all the
investors?
A Yes, absolutely. All of the products would be listed on the
US Stock Exchange, it would have options insurance
mechanism available; open options contracts, had to pay a
dividend. So all products have a yield component here on
page one, had to pay a dividend and maintain a certain level
of trading volumes to meet liquidity requirements. So it was
very, very clear that that was how your capital -- all of
your capital would be invested and it would all be a
36

hundred percent invested and deployed, and the word
insurance was often used. And the marketing pitch behind
that was, well, you insurance your car, you insurance your
health, you insurance your house, why wouldn't you
insurance your net worth in your portfolio? And Michael’s
experience as an options market maker on the trading floor
allowed him to you know, to sell that -- to sell that insurance
idea. But - - yes.
(Dkt. 200-20 at 56:24-25; 57-1-24)
The SEC also points to the deposition of Myrna Rivera, the Chief Executive
Officer of Consultiva, who testified that her clients—who invested in Kinetic Funds—
were not told that their money could be used to fund Lendacy loans. As Ms. Locke
explained in her deposition, Consultiva was “the largest independent investment
advisory firm” in Puerto Rico; thus, it was “crucial” for Kinetic Funds to receive
Consultiva’s endorsement, and when Kinetic Funds ultimately received the
endorsement, Kinetic Funds was able to begin attracting clients to invest in the hedge
fund. (Dkt. 200-20 at 71:15-20) Ms. Rivera testified that it was Consultiva’s
understanding that Lendacy had access to “independent capital” in order to fund the
loans it would make to investors. (Dkt. 200-56 at 51:8-23) She further testified that
none of Consultiva’s clients were ever told that their investment would be used to fund
Lendacy loans or used to loan funds personally to Michael Williams. (Id. at 52:3-18)
The SEC provides the names of investors who were not told that their
investment would be used to fund Lendacy loans. For example, Ms. Rivera lists the
following as clients of Consultiva who were never told how their investment would
be deployed: (1) a Puerto Rican state insurance fund named “Corporacion Del
37

Fondo De Seguro Del Estado” (“CFSE”); (2) Administracion De Compensaciones
Por Accidentes De Automoviles (“ACCA”); (3) FMB1, LLC; (4) EHERT, Inc.; (5)
Pre-Need; (6) Puerto Rico Community Foundation; (7) Sacred Hearty University;
and (8) SPMT, LLC. (Id. at 87-88)
The SEC next points to Ms. Locke’s deposition, in which she testified that at
least two investors were unaware that their investment in Kinetic Funds would be used
to fund loans for Lendacy:
Q Were either AEELA or Angelo Diaz told that their
investment in Kinetic Funds would be used to fund loans
for Lendacy?
A AEELA, no. Angelo Diaz was aware that he would be
eligible for a loan if he invested, but he was not aware of
how we accomplished that operationally with -- he -- as he
understood, a hundred percent of his assets would be
invested, remain invested in the market generating income,
working for him, and that he would get a separate line of
credit available to him to draw on.
So he was aware of Lendacy because he used Lendacy. He
was not truly aware of how Lendacy worked. He didn’t ask
any of the questions that somebody like Ryan Corbett
asked. And then [h]is wife, she didn't -- she made the
investment because he made the investment.
(Id. at 76:23-25; 77:1-14)
Based on the foregoing, the Court finds that the SEC has provided evidence to
establish that a misrepresentation concerning Lendacy’s funding source was made to
prospective investors.
In response, Williams argues that he did not make a misrepresentation because
portfolio margining, and not investor capital, funded Lendacy. (Dkt. 200-15 at 200:1138

15; Dkt. 221-2 at ¶¶ 140-142, 209) Williams raises the same argument in his motion
for summary judgment. (See Dkt. 202-1 at ¶¶ 15-18) In fact, the gravamen of Williams’
challenge to the SEC’s contention that he made material misrepresentations and
omissions to investors is that none of the loans he and his entities received from
Lendacy consisted of investor assets but were rather made with margin that Lendacy
received from Kinetic Funds by way of IB, its brokerage account. (Dkt. 221-2 at ¶¶
140-143)
Williams claims that Kinetic Funds employed this strategy, using portfolio
margin that it received from IB, to increase its ability to pursue various investment
strategies and to buy various investments and assets. (Id. at ¶ 109)
As explained above, Williams states that Kinetic Funds worked with Lendacy
to offer Kinetic Funds’ investors the ability to borrow up to 70% of the value of their
investment in Kinetic Funds at substantially reduced interest rates to use however the
investors might wish — e.g., to buy a home, to invest in a business, to pay a debt, etc.
(Id. at ¶ 136) Williams claims that Kinetic Funds was able to offer this service to its
investors by using portfolio margin in its IB account which it would lend to Lendacy,
which funds Lendacy would then lend to the investors. (Id. at ¶ 138-39) Said
differently, according to Williams, all of the funds transferred from Kinetic Funds’
bank account to Lendacy’s bank account were funds that were IB’s funds (i.e., margin
and not investor funds), which IB had loaned to Kinetic Funds. (Id. at ¶ 140) Thus,
according to Williams, Lendacy was lending only IB’s funds (or margin), and not
investor assets, to the investors to whom it extended loans. (Id.) By extension, Lendacy
39

was lending only IB’s funds (or margin), and not investor assets, when it provided
loans to Williams and his entities. (Id. at ¶ 143)
Initially, the Court notes that the SEC has pointed to evidence that investor
assets, and not margin, were used to fund the loans given to Lendacy. In Declaration
Two, Ms. Ivory explains that upon reviewing the bank account statements of Kinetic
Funds and Lendacy, she determined that the accounts received a combined total of
$312,275.00 from IB between January 2015 and September 2019, with the last deposit
from IB occurring on October 26, 2016. (Dkt. 219-2 at ¶ 7) But, according to Ms. Ivory,
the Lendacy bank account statements show that “approximately 44 Lendacy credit
line draw payments totaling over $1.5 million were paid between November 2016 and
September 2019.” (Id. at ¶ 9) Williams, for his part, concedes that he and his entities
received loans from Lendacy totaling over $6.3 million between March 2017 and April
2019. (See Dkt. 221-2 at ¶¶ 181, 186, 191, 193, 201). In other words, the $312,275.00
that Kinetic Funds and Lendacy received from IB could not have funded the
approximate $7.8 million in Lendacy loans given to investors, Williams, and his
entities.
However, even if the Court credited Williams’ version of how investors received
loans from Lendacy, which the Court has done because Williams is the non-moving
party in regard to the SEC’s motion for summary judgment, there is no dispute that
investor assets were not used in the way represented. “The mere existence of some
alleged factual dispute between the parties will not defeat an otherwise properly
supported motion for summary judgment; the requirement is that there be no genuine
40

issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)
(emphasis added).
Williams testified that brokerage firms provide portfolio margining to a
customer based on the total percentage of the customer’s assets in his or her account,
which the customer can borrow from the brokerage firm. (Dkt. 221-2 at ¶¶ 101-105)
(emphasis added) Consequently, IB’s ability to provide cash to Lendacy, which in turn
provided loans to Williams and his entities, depended on the existence of investor
capital in the first instance. At the March 6, 2020, asset freeze hearing, Judge Jung
noted the same when counsel for Defendants argued that margin was being used
instead of investor assets to fund the Lendacy loans:
MR. KEHOE: They weren’t in fact using the assets.
They were using the margin.
THE COURT: Well, no. Of course they were using the
assets. You get the margin by collateralizing grandma's
stock.
MR. KEHOE: Sure.
(Dkt. 227-2 at 4) (emphasis added).
More to the point, Williams fails to proffer his own evidence (by affidavits,
depositions, answers to interrogatories, or admissions on file) that all investors were
informed that portfolio margining was being used to fund Lendacy and thereby
provide loans to investors, to Williams, and Williams’ entities. In short, not only was
a misrepresentation made, but there was also an omission of fact necessary to render
the Lendacy brochure and Operating Agreement not misleading to investors.
41

Further, this misrepresentation and/or omission concerning the use of investor
assets or margin to fund loans was certainly material. Williams admits that “[m]argin
is a debt that carries interest.” (Stipulation of Agreed Material Facts, Dkt. 220 at ¶ 21)
Williams also admits that “[i]f the Brokerage Account fell below the minimum
maintenance margin, then IB, at its sole discretion, could issue a margin call, i.e.,
require Kinetic Funds to put more cash into the Brokerage Account, purchase more
options, or liquidate some of its positions.” (Id. at ¶ 22)
Although Williams argues that a margin call never happened, (Dkt. 221-2 at ¶
212), the Court cannot agree that because a margin call never occurred, a reasonable
investor would conclude that his or her investment in Kinetic Funds had been used in
a way that was truthfully represented. To the contrary, courts have found that this type
of misrepresentation and omission is material to the reasonable investor. See SEC v.
Smart, 678 F.3d 850, 857 (10th Cir. 2012) (finding that “it would be material to a
reasonable investor that his or her money was not being used as represented in safe
investment strategies, but rather, in high risk ventures and for the payment of personal
expenses.”); see also SEC v. Reynolds, No. 1:06-cv-1801-RWS, 2010 U.S. Dist.
LEXIS 106822 at *10 (N.D. Ga. Oct. 5, 2010) (finding that a material
misrepresentation occurred where defendant falsely stated to investors that their funds
would remain in defendant’s bank account until the transaction was approved). The
possibility that investors could lose all of their investment as a result of a margin call
is material, whether or not a margin call ever occurs.
Consequently, the Court finds that a material misrepresentation concerning the
42

source of Lendacy’s funding was made to investors, whether Williams used investor
assets or margin to fund such loans given to himself and his entities.
(b)
CATEGORY TWO: WILLIAMS’ OWNERSHIP
OF LENDACY
The SEC claims Williams failed to disclose to most investors that KFYield
would invest in a “private sector funding company,” and to the extent he did, he
omitted that the “private sector funding company” referred to his private entity,
Lendacy. (Dkt. 200 at 23) The Court agrees. The undisputed facts are as follows.
Exhibit C-1 to the Operating Agreement, signed by Class C Members, provides that
“[a]ll funds may include a ‘Preferred Return’ investment. This investment is in a
private sector funding company that offers fixed[-]rate preferred interest returns.”
(Dkt. 200-6 at 11) Exhibit B-1 to the Operating Agreement, signed by Class B
Members, omits the Preferred Return provision entirely. (Id. at 6) Both agreements
bear the signature block of “Kinetic Funds I, LLC Class A Member: Michael S.
Williams, Managing Member of KF42, LLC, Managing Member of its Managing
Member, Kinetic Partners, LLC.” (Dkt. 200-6 at 9, 14) (emphasis added) The
Agreements do not identify the private sector company as Lendacy, nor does it disclose
that Lendacy is Williams’ entity. (See Dkt. 200-6)
Williams fails to proffer his own specific facts (by affidavits, depositions,
answers to interrogatories, or admissions on file) to oppose the SEC’s specific facts on
this ground. The SEC shows that there is an absence of evidence to support Williams’
contention that he disclosed this information to investors. In his deposition, Williams
43

concedes that Exhibit C-1 fails to identify for investors what the “private sector funding
company” is or that the company refers to his private entity, Lendacy. (Dkt. 200-15 at
144-45) Williams admits that the “preferred return investment,” referenced in Exhibit
C-1 to the Operating Agreement, refers only to his entity, Lendacy, of which he is the
majority owner. (Id. at 145:13-24) Williams further states that he thought it was not
important for investors to know that he was the majority owner of Lendacy. (Id. at
146:20-25, 147:1-2)
Because Williams failed to disclose Lendacy as the “private sector funding
company,” the Court finds that the SEC has established an omission. To the extent
Williams may have personally disclosed to “several” investors that Lendacy was the
“private sector funding company” referred to in the Operating Agreement, (Dkt. 2212 at ¶ 210), there is no dispute that he failed to disclose to any investors that he was
the majority owner of it. (Dkt. 200-15 at 146:20-25, 147:1-2) As such, the SEC has
established an omission on this ground as well.
Furthermore, the Court finds that there is no genuine dispute of material fact as
to whether either omission was material. Williams testified that he believed it was not
important for investors to know that he was the majority owner of Lendacy because
“the investors [were] generating income from [Lendacy], using [Lendacy] to provide
themselves loans.” (Id. at 146:17-19) Williams also points to his Declaration, filed in
support of his response to the SEC’s motion for summary judgment, in which he states
that “[a]s a service and benefit to Kinetic Funds’ investors, Kinetic Funds worked with
Lendacy to offer Kinetic Funds’ investors the ability to borrow up to 70% of the value
44

of their investment in Kinetic Funds at substantially reduced interest rates to use
however the investors might wish — e.g., to buy a home, to invest in a business, to pay
a debt, etc.” (Dkt. 221-2 at ¶ 136)
However, as explained above, investors were never aware that the source of
Lendacy’s funding was their own money or that it was their own money being returned
to them in the form of a loan from Lendacy whenever they invested in Kinetic Funds.
Investors were also never aware that it was their own money that funded the loans
Williams received from Lendacy for his personal and business ventures. These
omissions were material because there was a “substantial likelihood that the disclosure
of the omitted fact would have been viewed by the reasonable shareholder as having
significantly altered the ‘total mix of information available.’” Basic, Inc. v. Levinson,
485 U.S. 224, 232 (1988); see SEC v. Smart, 678 F.3d at 857. As such, the Court finds
that Williams’ failure to disclose that Lendacy was the private sector funding company
referenced in the Operating Agreement and that he was the majority owner of Lendacy
were material omissions as a matter of law.
(c)
CATEGORY THREE: INCOME-PRODUCING
U.S. LISTED PRODUCTS
Williams admits that he told investors that their capital would be invested in
income-producing U.S.-listed financial products. (Joint Stipulation of Agreed Material
Facts, Dkt. 220 at ¶ 10) However, contrary to those representations, the SEC claims
Williams “invested” a substantial portion of investor capital in Lendacy. While
Williams disputes that he invested a “substantial portion” of investor capital in
45

Lendacy, he nevertheless concedes that Lendacy is not a U.S.-listed financial product.
(Id. at ¶ 12) The Court finds that there is no genuine dispute of material fact that
Williams made this misrepresentation to investors and that this misrepresentation was
material.
As above, the SEC highlights the deposition of Kelly Locke, who testified that
“Lendacy had no source of income of its own” and that it was the investors’ “own
investment being sent back out to them – and being charged interest.” (Dkt. 200-20 at
6:11, 23-24). Ms. Locke further testified that a majority of investors’ money was not
given to Kinetic Funds’ brokerage account at IB. (Id. at 12:3-5) Instead, according to
Ms. Locke, investor money:
…stayed sitting in the bank account. It would be used for -it was used for certain transactions from Michael. The two
particular real estate transactions. It would be used
sometimes for operational expenses if the companies cannot
afford to pay the bill, which Lendacy was never profitable
on its own, El-Morro was never profitable on its own, so
these companies continually had to be subsidized all by the
one source of income that we had, which was investor
capital into the KF Yield Fund.
Q: And the investor capital was also used to fund Lendacy
loans, correct?
A: Yes.
(Id. at 12:6-19).
The SEC also points to Ms. Ivory’s Declaration One. (Dkt. 200-24) There, she
explains that the bank statements of Kinetic Funds and Lendacy revealed that at least
$9.1 million (net) of investor funds was transferred from Kinetic Funds’ bank account
46

to Lendacy’s bank account between January 2015 to September 2019. (Id. at ¶ 11) An
additional $31,000.00 in payments was made from the Kinetic Funds bank account to
Silexx, which as stated above, was a company that Williams partially owned and/or
one in which he held a financial. (Id. at ¶ 12) One payment in the amount of $37,000.00
was made to Williams’ mother, Margery J. King, in May 2015 from the Lendacy bank
account. (Id. at ¶ 13) As noted above, Williams concedes that he received loans from
Lendacy for the benefit of himself and his entities. (See Dkt. 221-2 at ¶¶ 169-210)
As a result, the Court finds that, based on the deposition of Ms. Locke, the
Declarations of Ms. Ivory, and Williams’ concession, the SEC provides evidence that
investor capital was diverted to Lendacy, which does not comport with Williams’
representation to investors that their capital would only be invested in incomeproducing U.S. listed financial products. As noted above, Williams even concedes that
Lendacy is not a U.S.-listed financial product. (Dkt. 200 at ¶ 12; Dkt. 221 at 10, n. 5556)
Nonetheless, Williams argues that the Court should ignore Ms. Locke’s
testimony because she only stated that a “majority” (and not all) of investor funds were
used to fund Lendacy loans. (Dkt. 221-1 at 29) Williams’ argument misses the mark.
Williams appears to suggest that because some of the investor funds were not used to
fund Lendacy loans, those funds were thus invested in income-producing U.S. listed
financial products and, consequently, he did not make a misrepresentation to
investors. But the bank accounts, as noted above, belie that assertion because at least
some of the funds that were not transferred to Lendacy and remained in the Kinetic
47

Funds bank account were instead transferred to Williams’ entity, Silexx. (Dkt. 200-24
at ¶¶ 12-13)
More importantly, Williams unequivocally concedes that he “told investors that
their money would be invested in income-producing U.S. listed financial products.”
(Dkt. 220 at ¶ 10) Williams never told investors that their capital would be transferred
to Lendacy or to any other person or entity that was not a U.S.-listed financial product.
(See id.) As such, Ms. Locke’s testimony – that only a “majority” of KFYield’s
investor funds were used to fund Lendacy loans – still demonstrates that Williams
acted in a manner that was contrary to the representation made to investors because
each investor’s capital should have only been invested in income-producing U.S.-listed
financial products.
Williams next argues that he invested all investor funds in U.S.-listed financial
products. For support, he relies solely on his Declaration, which does not address the
SEC’s contention of misrepresentation. In his Declaration, Williams states that “[f]or
each investor who invested in Kinetic Funds, an amount of U.S.-listed financial
products was purchased in Kinetic Funds’ IB account equal in value to the investor’s
investment in Kinetic Funds.” (Dkt. 221-2 at ¶ 134; see also id. at ¶¶ 139, 151) Even if
Williams is correct, Williams fails to explain how the investor’s investment remained
invested in U.S.-listed financial products when investors’ capital was either transferred
to Lendacy or given to Lendacy from Kinetic Funds through IB (i.e. margin) to fund
the loans Williams and his entities received. As explained above, Williams’ argument
that investor capital was not being used to fund the Lendacy loans, but that it was
48

rather portfolio margining being employed by IB to fund the loans, does not advance
his claim that he was using investor money in the way that he represented he would
to investors.
For the foregoing reasons, the Court also finds that this misrepresentation was
material. Investors’ money was not being used in the way that was represented to
them, and, on these facts, that is material as a matter of law. See Smart, 678 F.3d at
857.
(d)

CATEGORY FOUR: SECURE PRINCIPAL

Next, Williams concedes that he advised investors that KFYield was a
conservative blended fund and their principal would be secure because the KFYield
portfolio would be hedged with listed options. (Dkt. 220 at ¶ 13) Williams further
concedes that written marketing materials state that Kinetic Funds will “maintain 90%
principle [sic] protection” and that “90% [of KFYield’s] portfolio [is] hedged using
listed options against market volatility risk.” (Id. at ¶ 14)
However, the SEC claims that Williams failed to hedge at least 90% of
KFYield’s portfolio using listed options. The SEC relies on Ms. Ivory’s Declaration
One, where she notes that investor assets totaled approximately $39 million as of
January 2019. (Dkt. 200-24 at ¶ 10) Investor assets diverted to Lendacy (which totaled
approximately $9.1 million) accounted for more than 23% of KFYield’s proceeds
between January 2015 and September 2019. (Id. at ¶¶ 8, 11) The SEC also points to a
summary of misappropriated funds as proof that Kinetic Funds transferred money to
Lendacy, which in turn led to loans received by Williams and Williams’ entities
49

totaling approximately $6.3 million. (Dkt. 200-55) Thus, because more than 23% of
KFYield’s proceeds were diverted to Lendacy, the SEC contends that 90% of
KFYield’s portfolio could not have been hedged using listed options.
Williams points to his own Declaration in an attempt to dispute these facts.
There he states that “[e]very investment that Kinetic Funds held in its IB account was
hedged with U.S.-listed options so that they could never lose more than 10% of their
value due to adverse market movement.” (Dkt. 221-2 at ¶ 131; see also id. at ¶¶ 132133, 135) Williams further claims that “because the collateral supporting the funds that
Lendacy loaned to its customers were U.S.-listed financial products held in Kinetic
Funds’ IB account that were hedged with U.S.-listed options, Lendacy’s loans were
effectively hedged with U.S.-listed options.” (Dkt. 221-2 at ¶ 152) Similarly, in his
deposition, when asked whether Lendacy could be hedged using listed options,
Williams answered in the affirmative and stated:
Well, you can do indirect hedging, correlating hedging and
various arbitrage hedging. So one of the things that I have
done in the past frequently was using options to hedge
various portfolios of securities, housing, illiquid assets, even
corporate bonds. So options can be used to hedge illiquid
assets as well as liquid assets. Obviously we over-hedged the
positions in case there were any security risks or any losses
in Lendacy.
(Dkt. 200-15 at 158:10-19)
Williams’ response, however, does not controvert the SEC’s claim that
Williams failed to hedge at least 90% of the KFYield portfolio using listed options. As
explained above, more than 23% of KFYield’s proceeds were diverted to Lendacy,
50

which Williams cannot credibly dispute. Hedging the collateral that supported the
diverted funds, which Williams claims he did, is not equivalent to hedging investor
funds and not diverting them. At best, Williams hedged 67% of investor funds, not
90% of the funds as he promised. Thus, the Court finds that this misrepresentation was
material because investors’ money was not being used in the way that was represented
to them. See Smart, 678 F.3d at 857.
(e)

CATEGORY FIVE: LIQUIDITY

The SEC argues that Williams made it clear to investors that KFYield assets
had liquidity. (Dkt. 200 at 18) For example, the SEC points to an email sent by
Williams to Consultiva, in which he attaches a report stating that KFYield offers
“Liquidity (quarterly liquidation with 30-day notice on any unencumbered funds).”
(Dkt. 200-18 at 7) The report further stated that “[l]iquidity and volume of products
are in the top 20% of all listed securities. Analysis of these listed products reflect[s] a
very high liquidity factor and improves the ability to mitigate risk and/or liquidate
positions in a timely fashion.” (Id. at 8) Williams does not dispute these facts, and he
even concedes that written brochures claimed: “Your money is always available . . . .
The fund’s positions are hedged out to 90 days, so with a 30-day written notice prior
to the quarter end, the fund can redeem 100% principal without penalties.” (Dkt. 220
at ¶ 15) (citing Dkt. 200-19 at 4)
The SEC claims, however, that KFYield’s investment in Lendacy, which
consisted of unsecured loans primarily for the benefit of Williams, significantly limited
Kinetic Funds’ ability to honor redemption requests to all investors equitably. (Dkt.
51

200 at ¶ 29) As proof, the SEC points to four Lendacy Credit Facility and Disclosure
Agreements, i.e. loan agreements, in which Williams and his entities received loans
from Lendacy. Two of the loan agreements, totaling $2,550,000.00 are unsecured,
(Dkts. 200-36, 200-37), while the other two agreements, totaling $4,272,000.00 were
also unsecured. (Dkts. 200-53, 200-54)
Williams, for his part, claims that all of the loan agreements he and his entities
entered into with Lendacy were secured. (See Dkt. 221-2 at ¶¶ 179-80, 190, 195, 197)
For example, regarding the $1,517,000.00 loan Williams received from
Lendacy to purchase his residential properties in Puerto Rico, Williams testified that
“[a]s collateral . . ., I pledged to Lendacy a security interest in my 40% interest in
Silexx, which I was then in the process of selling to the Chicago Board of Options
Exchange (‘CBOE’). In the course of my negotiations with the CBOE, the parties
agreed that the value of Silexx was $20,000,000, which meant that my 40% interest in
Silex was worth $8,000,000 — which was well more than the $1,517,000 line of credit
I sought from Lendacy.” (See id. at ¶ 179) Williams provides the Collateral Agreement
for support. (Dkt. 221-2 at 179-181) Williams also claims that he pledged to Lendacy
$2,550,000.00 of the payments he “was to receive from the sale of Silexx” for the
Lendacy loans he received on behalf of his entity, LF42. (See id. at ¶¶ 194-97)
However, being in the process of selling a 40% interest in another company, an
asset that Williams contends was valued at $8,000,000.00, is not the same as leaving
investor funds in an account available to liquidate on 30 days’ notice. If Silexx was
truly “liquidity equivalent,” as Williams appears to contend, Williams should have
52

liquidated his Silexx asset instead of borrowing cash from Lendacy to purchase his
residential properties. There is no genuine dispute that an unsold asset pledged as
collateral is not equivalent to Williams’ representation that liquid cash would be
available for an investor on 30 days’ notice.
Williams also claims that he “gave Lendacy a copy of the title documents and
other paperwork related to the residential property . . . and agreed to assign full title to
the residential property to Lendacy in the event [he] failed to repay” the Lendacy loan.
(Dkt. 221-2 at ¶ 180) However, he asserts that he “do[es] not know what Lendacy did
with the title documents and other paperwork that I gave it.” (Id.) “It is the universal
rule with reference to pledges of personal property as security for debt that
possession, either actual or symbolic, of the thing pledged must be delivered by the
pledgor to the pledgee, in order to create the lien.” Nat’l City Bank v. Toffel (In re Ala.
Land & Mineral Corp.), 292 F.3 1319, 1326 (11th Cir. 2002). The Court takes as true
Williams’ testimony, as the non-moving party on the SEC’s motion for summary
judgment, that a lien was created on the residential property for the benefit of Lendacy
because he pledged title of the property to it. But even taking as true such testimony,
“a lien . . . is no guarantee that property will have the imputed value at the time it may
become necessary to exercise the lien.” Bank Leumi Trust Co. v. Meagher, No. 93
Civ. 7351, 1994 U.S. Dist. LEXIS 11711 at * 11 n.5 (S.D.N.Y. Aug. 22, 1994).
Further, as above, pledging title to a residential property is not the same as leaving
investor funds in an account available to liquidate on 30 days’ notice. Williams also
fails to explain whether such a lien could be easily liquidated in the event an investor
53

requested his or her money on 30 days’ notice. The Court finds that there is no genuine
dispute that a lien on a residential property pledged as collateral is not equivalent to
Williams’ representation that liquid cash would be available for an investor on 30 days’
notice.
Williams similarly contends that his entity, Scipio, pledged to Lendacy title to
the historic bank building that it bought for $2,755,000.00, which was money that
Scipio received from Lendacy as a loan. (See Dkt. 221-2 at ¶¶ 190-91) For the same
reasons explained above, however, the Court finds that there is no genuine dispute
that a lien on a historic bank building pledged as collateral is equivalent to Williams’
representation that liquid cash would be available for an investor on 30 days’ notice.
In light of the foregoing, the Court concludes that there is no genuine dispute of
fact concerning whether Williams obtained unsecured loans from Lendacy. As a
result, KFYield’s investment in Lendacy, which consisted of unsecured loans made to
Williams and his entities, significantly limited KFYield’s ability to honor redemption
requests to all investors equitably. (Dkt. 200 at ¶ 29)
Williams, however, directly disputes the SEC’s contention that Kinetic Funds’
ability to honor redemption requests was ever limited. In his declaration, Williams
states:
151. Since all of the funds that Kinetic Funds’ investors
invested in Kinetic Funds were invested in U.S.-listed
financial products — and all of those investments were
hedged and none of the[m] could ever lose more 10% of
their value (and therefore none of them would ever be worth
less than 90% of the price Kinetic Funds paid to purchase
them) — and since Kinetic Funds generally limited the
54

amount that its investors could borrow from Lendacy to
70% of the value of their investments in Kinetic Funds,
there was never any danger that the funds loaned by
Kinetic Funds to Lendacy would jeopardize any of the
investors’ investments in Kinetic Funds.
152. Further, because the collateral supporting the funds
that Lendacy loaned to its customers were U.S.-listed
financial products held in Kinetic Funds’ IB account that
were hedged with U.S.-listed options, Lendacy’s loans were
effectively hedged with U.S.-listed options.
153. If an investor invested $1,000,000 in Kinetic Funds,
those funds were invested in U.S-listed financial products
that were hedged and the values of which could never fall
below $900,000. If Kinetic Funds then lent $700,000 to
Lendacy to lend to that same investor, there would always
be sufficient funds available to cover that loan (with a
$200,000 cushion) — even if the investor skipped town
and failed to repay any part of the loan and even if the
stock market crashed and the value of U.S.-listed
financial products fell to $0.50/share.
154. Since every loan made by Kinetic Funds to Lendacy to
an investor was coordinated with any investment by the
investor in Kinetic Funds and generally capped at a
maximum of 70% of the investor’s investment in Kinetic
Funds, even if every one of Kinetic Funds’ investors
borrowed 70% of the value of each of their respective
investments in Kinetic Funds and then they all skipped
town and refused to repay their Lendacy loan and then the
stock market collapsed, Kinetic Funds would still have
sufficient assets to repay all of its investors their
investments in the event Kinetic Funds was liquidated.
(Dkt. 221-2 at ¶¶ 151, 153-154) (emphasis added).
Williams’ explanation, however, fails to controvert the SEC’s evidence that he
obtained unsecured loans from Lendacy and that, by doing so, he affected Kinetic
Funds’ ability to equitably honor redemption requests to all investors. See supra. There
55

is no genuine dispute that using investor cash to obtain unsecured loans affects the
ability of a hedge fund to equitably honor redemption requests on 30 days’ notice as
promised to investors. The Court further finds that this misrepresentation was material
because investors’ money was not being used in the way that was represented to them.
See Smart, 678 F.3d at 857.
(f)

CATEGORY SIX: ACCOUNT STATEMENTS

The SEC claims that Williams misrepresented to investors the amount of assets
in Kinetic Funds because the known assets were less than the aggregate amount
reflected on investor account statements.
As evidence, the SEC first points to Ms. Ivory’s Declaration One. There, she
states that upon reviewing the known assets of Kinetic Funds (Kinetic Funds’ bank
account, total number of outstanding loans Kinetic Funds extended to Lendacy, and
Kinetic Funds’ IB account statements), she was able to compute assets totaling
approximately $28.7 million as of October 2019 for Kinetic Funds. (Dkt. 200-24 at ¶¶
5-9) However, investor proceeds, as evidenced by Kinetic Funds’ monthly transactions
spreadsheet, (id. at 8-13), totaled approximately $39 million between January 2013
and June 2019. Similarly, the Investor Statements, (Dkt. 200-25 at 30-40; Dkt. 200-26
at 1-26), showed a total market value of approximately $39 million as of January 2019
for Kinetic Funds, of which about 98% was held in the KFYield fund. Thus, the SEC
provides evidence demonstrating that Kinetic Funds’ known assets ($28.7 million)
were less than the aggregate amount reflected on investor account statements ($39
56

million).
For corroboration, the SEC points to the deposition of Ms. Locke, who testified
that the account statements investors received did not reflect any Lendacy loans that
may have been given to them. Specifically, the SEC’s questioning, and Ms. Locke’s
response, went as follows:
Q. Okay. If a particular investor in the KF Yield Fund also
utilizes the credit line from Lendacy or KCL, would that be
reflected in their KF Yield statement?
A. No. They had a separate credit line statement that
reflected their loan obligation with KCL Services. So it's not
indicated anywhere on the Kinetic statements that there
was a loan obligation or a credit line. They were two
entirely different statements.
Q Would the market value of their holdings in the KF
Yield Fund be different if they had participated in the
credit line? If you understand what I’m saying.
A Yes. And the -- a yes to I understand what you're saying,
but no to your question. Their market value was
calculated based on a hundred percent of the investment
amount. So it’s not -- if you are alluding to maybe only you
know, maybe their investment statement only represented
30 percent because that’s all that was left in there and they
used the other amount as a loan, that’s not the case. Their
investment statement represented their full investment
amount regardless of the lending of the loan and
calculated their market value on their total investment
even though a significant portion -- all of -- you know,
even though that money would have to be transferred
over to fund their loan if they had one, the statement
always represented a hundred percent of their investment
amount.

57

(Dkt. 200-20 at 13-14) (emphasis added) Thus, Ms. Locke’s testimony provides
independent, corroborating evidence that the aggregate amount reflected on investor
statements did not account for any money that was transferred over to Lendacy to
provide loans to investors or to provide loans for Williams or his entities.
Williams concedes that he had ultimate control over the contents of the account
statements. (Stipulation of Agreed Material Facts, Dkt. 220 at ¶ 16) However, in his
Declaration, he contends that “[e]ach month, Kinetic Funds prepared an account
statement for each of Kinetic Funds’ investors (“Kinetic Funds Statement”), which
account statement accurately reflected the current total value of each investor’s
respective investment in Kinetic Funds based on the current total value of all of the
assets owned by Kinetic Funds — including the total value of all of the U.S.-listed
financial products Kinetic Funds held in its IB account, the total value of the margin
debt it owed to IB, the total value of the funds it held in its BMO account, and the total
value of the loans it extended to Lendacy and deducting the Class A Member’s share
of Kinetic Funds’ net profits and the expenses incurred by Kinetic Funds.” (Dkt. 2212 at ¶ 166)
Williams further testifies that “[t]he total value of all of the Kinetic Funds’
investors’ investments in Kinetic Funds as reflected in the Kinetic Funds Statements
was always equal to the total value of all of the assets owned by Kinetic Funds as
reflected in the Bloomberg Report on that same date because the Kinetic Funds
Statements and the Bloomberg Report took into account all of the Kinetic Funds’
holdings at IB and outside of IB.” (Id. at ¶ 167) Williams claims that “[t]o the extent
58

that the Kinetic Funds Statements and the Bloomberg Reports were generated on
different days — even if just one day apart — the total value of the Kinetic Funds’
investors’ investments in Kinetic Funds as reflected in the Kinetic Funds Statements
would not be equal to the total value of all assets owned by Kinetic Funds as reflected
in the Bloomberg Reports due to market changes, investment transactions, etc., in the
intervening time.” (Id. at n. 12)
While the Court believes it is a close call, the Court finds that Williams has
raised a genuine dispute of fact concerning the accuracy of the account statements. It
is not for this Court to weigh the evidence and decide the truthfulness of Williams’
sworn-to statement that, on a given day, Kinetic Funds’ investor statements may be
different from the Kinetic Funds’ assets as reflected in the Bloomberg reports given the
“market changes [and] investment transactions” that may occur. (See id.) As a result,
the Court cannot address whether this purported misrepresentation was material.
(g)
CATEGORY SEVEN: PORTFOLIO
PERFORMANCE
The SEC next asserts that KFYield’s portfolio performance to investors did not
match its actual performance. (Dkt. 200 at 12) The SEC points to Defendants’
Bloomberg reports as proof that a misrepresentation was made to investors. The SEC
states, and Williams concedes, that “the Bloomberg report as of December 29, 2017,
the contents of which Williams had ultimate authority over, reflected that Kinetic
Funds’ total assets were $31.78 million and its year-to-date performance was 1.04%.”
(Stipulation of Agreed Material Facts, Dkt. 220 at ¶ 17) (citing Dkt. 200-57 at 10-11)
59

However, the SEC claims that the Bloomberg report failed to include the margin
balance contained in KFYield’s brokerage statements from IB. (Dkt. 200 at ¶ 31)
(citing Dkt. 200-57 at 10-11) The SEC explains that KFYield’s annual IB statement as
of December 31, 2017, actually showed that KFYield had a net asset value of
approximately $4.7 million, which was a -27.52% time-weighted, or annual, rate of
return from December 31, 2016 ($88,877,936.84) in cash, i.e., margin. (Dkt. 200 at ¶
32; Dkt. 200-58) In other words, the IB statement reflected a negative dollar amount
of approximately $89 million on margin for KFYield, demonstrating that the overall
annual performance of the KFYield portfolio resulted in a loss. Further, the annual
statement showed that KFYield had incurred $439,632.20 in interest and that KFYield
incurred market-to-market losses of $3,154,506.38. (Dkt. 200 at ¶ 32; Dkt. 200-58)
According to the SEC, none of this information was reflected in the Bloomberg report,
making it appear to investors as if KFYield was performing better than it was.
Williams points to his Declaration in an attempt to raise a genuine dispute of
fact as to whether the Bloomberg reports failed to include the margin balance. There,
he asserts that Kinetic Funds used Bloomberg to generate a report that “accurately
reflected the current total value of all of the assets owned by Kinetic Funds (including
those assets allocated to KFYield) and the performance of those assets — including
the total value of all of the U.S.-listed financial products Kinetic Funds held in its IB
account, the total value of the margin debt it owed to IB, the total value of the funds
it held in its BMO account, and the total value of the loans it extended to Lendacy.”
(Dkt. 221-2 at ¶ 165) (emphasis added)
60

Williams’ testimony, however, does not create a dispute of material fact. “It is
well-settled that conclusory affidavits, submitted by a nonmoving party in opposition
to a motion for summary judgment, will not create an issue of fact for trial.” Org. of
Pro. Aviculturists Inc. v. Kershner, 564 F. Supp. 3d 1238, 1247 (S.D. Fla.
2021) (citing United States v. Stein, 881 F.3d 853 (11th Cir. 2018)). “Conclusory
allegations without specific supporting facts have no probative value.” Id. (citing Roda
v. Univ. of Miami, 542 F. Supp. 3d 1289, 1294-95 (S.D. Fla. 2021)). Further, affidavits
that are based upon “[b]ald conclusions, opinions, and hearsay without supporting
specific facts are not admissible and do not create a genuine issue of material
fact.” Venerio v. Fed. Express Corp., No. 17-22624, 2018 U.S. Dist. LEXIS 159154,
2018 WL 5283876, *5 (S.D. Fla. Sept. 17, 2018) (citing Evers v. Gen. Motors Corp.,
770 F.2d 984, 986 (11th Cir. 1985)).
Here, Williams’ statement that Kinetic Funds used Bloomberg to generate a
report that included “the total value of the margin debt it owed to IB,” is simply a
conclusory allegation. Williams has set forth no “specific supporting facts” in support
of his contention that the Bloomberg reports included KFYield’s margin balance. For
instance, he does not provide a Bloomberg report for the Court to review despite his
concession that he “had ultimate authority” over the contents of such a report. (See
Dkt. 220 at ¶ 17) Instead, Williams has simply proffered a “[b]ald conclusion . . .
without supporting specific facts,” which is “not admissible and do[es] not create a
genuine issue of material fact.” See Evers, 770 F.2d at 986.
The Court further finds that this omission of the margin balance on the
61

Bloomberg report was material because there was a “substantial likelihood that the
disclosure of the omitted fact would have been viewed by the reasonable shareholder
as having significantly altered the ‘total mix of information available.’” Basic, Inc. v.
Levinson, 485 U.S. 224, 232 (1988). A reasonable investor would conclude that
Williams’ failure to disclose the actual performance of KFYield was material because
the dramatic difference between KFYield’s year-to-date performance (+1.04%) and its
negative annual weight of return (-27.52%) would affect his or her decision to invest
or continue investing in KFYield.
(h)

CATEGORY EIGHT: MARGIN

The SEC claims that Williams failed to disclose to investors what portion of
Kinetic Funds’ portfolio was margined. (Dkt. 200 at 19) For support, the SEC cites to
Williams’ deposition, in which he admitted that investors’ account statements omitted
the portion of KFYield’s holdings that were bought on margin. (Dkt. 200-15 at 274:624) Thus, there is no dispute that investors’ account statements failed to explain what
portion of KFYield’s holdings were bought on margin.
But Williams also testified that “margin” is referenced in investors’ “operating
agreements, their documents, the exhibits, and some of the marketing materials.” (Id.
at 274:15-19) The Operating Agreements provide as follows: “The Funds’ goal is not
to exceed a Risk Margin of 75% to equity ratio, measured in the form of ‘haircut’ or
risk-based margin. While it is the goal to maintain this Risk Margin exposure, a
particular position or positions may increase or decrease depending on market
conditions. IT MUST BE NOTED that this is a guideline only when deploying
62

positions and maintaining the positions, and that this goal may be exceeded, in the
sole and absolute discretion of the Class A Member from time to time and at any
time.” (Dkt. 200-6 at 7, 12) (emphasis added) Williams also claims, in his Declaration,
that “every member of Kinetic Funds was entitled to obtain from Kinetic Funds at any
time full information regarding Kinetic Funds’ activities, affairs, and financial
information – including, but not limited to, the amount of Kinetic Funds’ investments
that were margined” upon request. (Dkt. 221-2 at ¶ 89)
Based on the foregoing, it would appear that investors were aware that the
KFYield portfolio was margined and that, while the Fund had a goal not to exceed a
risk margin of 75% to equity ratio, that percentage may be exceeded by Williams, as
the Class A Member of Kinetic Funds, “at any time.” (See Dkt. 200-6 at 7, 12) At a
minimum, therefore, a dispute of fact exists as to whether Williams was required to
disclose the precise portion of the KFYield portfolio that was on margin as the
language of the Agreement provides that the percentage of the portfolio that was
margined could fluctuate.
But even if Williams had a duty to disclose the portion of the KFYield portfolio
that was margined, it is unclear whether that information would be material to a
reasonable investor. Based on the Operating Agreement, investors knew that the Fund
could be margined at 75%, less than 75%, or greater than 75%. (See Dkt. 200-6 at 7,
12) Thus, it is unlikely that reasonable investors in this situation “would attach
importance to the fact . . . omitted in determining [their] course of action” because it
would not alter the “total mix” of information considered by them when they decided
63

to invest in Kinetic Funds. See Merchant Capital, LLC, 483 F.3d at 766; Radius
Capital Corp., 2013 U.S. Dist. LEXIS 10316 at *15. As a result, the Court finds that a
dispute of fact remains as it relates to this alleged omission and the materiality of such
omission.
(i)
CATEGORY NINE: WILLIAMS’ PURPORTED
LOANS
The SEC contends that Williams failed to disclose that he and his entities,
Scipio and LF42, received purported loans from Lendacy. The SEC first points to
Exhibit C-1 of the Operating Agreement. (Dkt. 200-6 at 11-14) Williams admits that
Exhibit C-1, which was provided to investors who had a relationship with Lendacy,
does not disclose that Williams or his entities, Scipio and LF42, would receive
purported loans from Lendacy. (Stipulation of Agreed Material Facts, Dkt. 220 at ¶ 8)
Williams admits in his deposition that he failed to disclose to all investors that he
received $1.5 million from Lendacy, which he used for the purchase of three luxury
apartments and parking spaces. (Dkt. 200-15 at 339:1-7) The SEC also points to the
deposition of Ms. Locke (Dkt. 200-20 at 6:9-25; 12:3-19), the declaration of Mr. Vargas
(Dkt. 200-50 at ¶¶ 14-16), and the deposition of Ms. Rivera (Dkt. 200-56 at 2-4), all of
whom state that they or other investors were unaware that Williams and Williams’
entities were receiving loans from Lendacy, funded by investor money.
Regarding Scipio, in particular, the SEC points to Williams’ own admission on
file. In response to the SEC’s first request for admissions, Williams admits that he did
not disclose to investors or prospective investors that Scipio received funds from
64

Lendacy at the time or before such funds were disbursed to Scipio. (Dkt. 200-14 at ¶
22) Williams also admits in his deposition that he did not disclose Scipio’s line of credit
to all investors. (Dkt. 200-15 at 351:15-25, 352:1-10) Because Williams admits to this
contention, the Court finds there is no genuine dispute of fact concerning this
omission.
Williams seeks to create a factual dispute by claiming that he “personally
disclosed to several Kinetic Funds investors that he, Scipio, and LF42 received loans
from Lendacy.” (Dkt. 221-2 at ¶ 210) But disclosing to several investors, even if true,
does not equate to disclosing to all investors, which he unequivocally admits he had
not done. (See Dkt. 200-15 at 339:4-7, 352:8-10) Williams does not explain why
disclosing to some, but not all investors, does not create an omission for those investors
who did not know Lendacy was providing loans to Williams and his entities.
The Court further concludes these omissions were material because there was a
“substantial likelihood that the disclosure of the omitted fact[s] would have been
viewed by the reasonable shareholder as having significantly altered the ‘total mix of
information available.’” Basic, Inc. v. Levinson, 485 U.S. 224, 232 (1988). Failing to
disclose to investors that their money would be used for the payment of one’s personal
expenses or for the benefit of one’s entities certainly represents a material omission.
See Smart, 678 F.3d at 857.
(j)

CATEGORY TEN: ZEPHYR AEROSPACE

The SEC argues that Williams failed to disclose that he used at least
$497,300.00 of investor assets to invest in Zephyr Aerospace, a private company that
65

was not listed on a U.S. exchange. (Dkt. 200 at 13) For support, the SEC points to
Exhibit B-1 and C-1 of the Operating Agreement given to investors, which fails to state
that at least $497,300.00 in investor asserts were used to invest in Zephyr. (Dkt. 200-6
at 6-10) The SEC also relies on Williams’ deposition, in which he admits that
approximately $500,000.00 of investor assets were used invest in Zephyr Aerospace.
(Dkt. 200-15 at 372:18-25, 373:1-25; 449:22-25) Williams also admits that Zephyr
Aerospace was not listed on any U.S. exchange because “[i]t’s a private equity
investment.” (Id. at 373:23-25)
As above, Williams seeks to evade his admission on two grounds. First, he
contends that he disclosed to some investors that their assets were used to invest in
Zephyr Aerospace. (See Dkt. 200-15 at 450:5-14) However, as explained above,
disclosing to some investors does not equate to disclosing to all investors, and he fails
to offer any explanation as to why disclosing to some investors but not all investors
does not qualify as an omission. Second, as above, he argues that investor assets were
not used to invest in Zephyr, but rather portfolio margin was employed. (Dkt. 221-2
at ¶¶ 140-143, 202, 209) However, for the reasons explained earlier, the Court rejects
this argument because, even if true, margin was simply another way of using investor
assets, specifically through the collateralization of such assets. See supra.
Finally, Williams’ omission was material because Williams used investor assets
to fund a personal business venture, failing to disclose to investors that their money
would be used in this way. See Smart, 678 F.3d at 857.

66

c.
SCHEME LIABILITY IN VIOLATION OF SECTIONS
17(A)(1) AND (3) AND RULES 10B-5(A) AND (C)
The SEC next contends that Williams violated Exchange Act Rules 10b5(a) and (c) and Securities Act Sections 17(a)(1) and (3), which prohibit in connection
with the purchase or sale or in the offer or sale of securities, “the employment of any
device, scheme, or artifice to defraud; and the engaging in any act, practice, or course
of business that operates or would operate as a fraud or deceit on any person.” See
Rule 10b-5(a), (c), and § 17(a)(1), (3).
“Scheme liability occurs when a defendant employs ‘any device, scheme, or
artifice to defraud,’ 17 C.F.R. § 240.10b-5(a) (Rule 10b-5(a)), or ‘any act, practice, or
course of business which operates or would operate as a fraud or deceit upon any
person,’ 17 C.F.R. § 240.10b-5(c) (Rule 10b-5(c)).” IBEW Local 5959 Pension &
Money Purchase Pension Plans v. ADT Corp., 660 Fed. App’x 850, 858 (11th Cir.
2016). “A scheme liability claim is different and separate from a nondisclosure claim.”
Id. (citation omitted). Because “[c]onduct itself can be deceptive,” a defendant can be
liable under § 10(b) and Rule 10b-5 for deceptive conduct absent a misstatement or
omission.” (citations omitted).
Williams disputes that he engaged in any deceptive or fraudulent conduct. As
such, the Court addresses this dispute first before turning to the other elements of the
statutes, including state of mind, the “in connection with” the purchase or sale (Rule
10b-5(a), (c)) or in the “offer or sale” (§ 17(a)(1), (3)) of securities, and the interstate
commerce or mails elements.
67

(1)
WILLIAMS’ MISUSE AND MISAPPROPRIATION OF
INVESTOR ASSETS
The SEC claims that Williams misappropriated at least $6.3 million of investor
funds for his own personal enjoyment and that he misused investor assets by investing
them in Zephyr Aerospace. (Dkt. 200 at 33) Specifically, as set forth above, the SEC
claims that Williams (1) paid off his mother’s mortgage using $37,000.00 of investor
funds; (2) purchased real property for his personal use using $1,512,575.50 of investor
assets; (3) purchased commercial property on behalf of his entity, Scipio, using
$2,755,000.00 of investor assets; and (4) used $2,550,000.00 of additional investor
assets in the form of two Lendacy loans on behalf of his entity, LF42, to provide
financial support to his outside business ventures. (Dkt. 200 at ¶¶ 44-48)
The SEC provides overwhelming record evidence to support its contention that
Williams misappropriated investor funds. (See, e.g., Dkt. 200-20 at 17-29; Dkt. 200-20
at 45; Dkt. 200-32 at 2-3; Dkt. 200-15 at 323:18-326:3; Dkt. 200-66; Dkt. 200-67; Dkt.
200-15 at 342:14-343:22; 344:1-348:19; Dkt. 200-20 at 35-44; Dkt. 200-28; Dkt. 20029; Dkt. 200-36, Dkt. 200-37; Dkt. 200-32 at 6, 9-13; Dkt. 221-3 at 26-28)
For example, in regard to Williams using $1,512,575.50 of investor assets to
purchase real property for himself in San Juan, Puerto Rico, Williams admitted in his
deposition that he knew $1.5 million of investor assets were withdrawn from Kinetic
Funds’ bank account on March 21, 2017. (Dkt. 200-15 at 325:7-17; 328:2-11) He then
concedes that the same amount of money was transferred to Lendacy on the same
date. (Id. at 329:13-24) Williams then admits that on March 23, 2017, he executed a
68

loan agreement with Lendacy for the same amount of money. (Id. at 333:14-19) And
he admits he used this “line of credit of $1.5 million dollars” in order “to purchase the
house and apartment in Puerto Rico.” (Id. at 334:16-21) In short, there is no dispute
that Williams misappropriated investor assets for his personal use.
Williams concedes that he received loans from Lendacy for the benefit of
himself and his entities, (see Dkt. 221-2 at ¶¶ 169-210), but he claims that the loans
were not funded with investor funds. (See Dkt. 221-2 at 51-66) Instead, Williams
contends that he employed portfolio margining to obtain loans from Lendacy. (See id.;
see Dkt. 202 at 10-12) For the reasons explained above, the Court does not find that
Williams has raised a dispute of fact as to whether he used investor funds to obtain
these loans from Lendacy because, even if he employed portfolio margin, Williams
does not dispute that he was only able to use margin obtained from IB because of the
existence of investor assets in the first instance. Furthermore, as the preceding
paragraph plainly demonstrates, $1.5 million of investor assets from Kinetic Funds, not
margin from IB, were transferred to Lendacy, which allowed Williams to obtain a loan
from Lendacy to purchase real property for his personal use.
Based on the foregoing, the Court finds that Williams’ misappropriations of
investor funds for his personal use serve as a basis for establishing scheme liability. See
SEC v. Zandford, 535 U.S. 813, 821-22 (2002) (concluding that a stockbroker’s sale of
client securities and subsequent misappropriation of the proceeds of that sale was
deceptive and violated Rule10b-5 because it was not authorized by or disclosed to the
clients and was thus properly viewed as a course of business that used fraud and
69

deceit.); SEC v. Laura, 680 F. Supp. 3d 204, 233 (E.D.N.Y. June 28, 2023) (“It is well
established that an undisclosed intent to misappropriate funds is sufficient to establish
scheme liability on a motion for summary judgment.”) (first citing Commodity
Futures Trading Comm'n v. McDonnell, 332 F. Supp. 3d 641, 720 (E.D.N.Y. 2018);
and then citing Zandford, 535 U.S. 813, 819-20, 122 S. Ct. 1899, 153 L. Ed. 2d 1
(2002)).
In light of the Court’s finding, the Court need not address the SEC’s alternative
ground for establishing scheme liability against Williams, that is whether he “papered
credit agreements, collateralized by supposed future payouts, in order to hide his use
of investor assets to fund his personal expenses and business ventures.” (Dkt. 200 at
31)
d.
WILLIAMS’ STATE OF MIND AS TO HIS MISSTATEMENTS,
OMISSIONS, AND MISAPPROPRIATIONS
The SEC claims that Williams acted with scienter, or at least negligence, in
misappropriating investor funds, pursuant to Sections 17(a)(1) and (3) and Rules 10b5(a) and (c), and making the ten categories of allegedly misleading misrepresentations
and omissions referenced above, pursuant to Sections 17(a)(2) and Rule 10b-5(b).
To recall, for claims under Section 17(a)(1) and Rule 10b-5, the SEC must
establish a defendant acted with scienter. S.E.C. v. Merch. Cap., LLC, 483 F.3d 747,
766 (11th Cir. 2007). But for claims under Sections 17(a)(2) and (3), the SEC need only
demonstrate negligence. Id.
Given the fact issues regarding the accuracy of the account statements
70

(Category Six) and the portion of the Kinetic Funds’ portfolio that was margined
(Category Eight), the Court cannot conclude whether Williams knew or should have
known that the materials investors received, from either Kinetic Funds or Lendacy,
were deficient in this regard.
Consequently, the Court will limit its analysis of Williams’s scienter and
negligience to his misrepresentations and omissions regarding: (a) Lendacy’s funding
source (Category One); (b) Williams’s ownership of Lendacy (Category Two); (c)
whether all investor funds were invested in U.S.-listed financial products (Category
Three); (d) whether Williams misrepresented to investors that their principal would be
secure because the KFYield portfolio would be hedged with listed options (Category
Four); (e) the liquidity of the KFYield assets (Category Five); (f) the performance of
the KFYield portfolio (Category Seven); (g) the loans he and his entities received from
Lendacy (Category Nine); and (h) his use of investor assets to invest in Zephyr
Aerospace (Category Ten). Because the misrepresentations that the SEC claims
Williams made in Categories Nine and Ten reflect the misappropriations the SEC
contends Williams also perpetrated, the Court’s analysis as to Williams’ state of mind
under these categories will necessarily apply to the asserted misappropriations. See
supra.
(1)
SCIENTER UNDER RULE 10B-5(A)-(C) AND
SECTION 17(A)(1)
The Court proceeds by first analyzing whether the SEC has established
Williams acted with scienter in making the misrepresentations and omissions under
71

Rule 10b-5(b). The Court will also address whether the SEC has established Williams
acted with the requisite scienter in engaging in the misappropriation of investment
funds under Section 17(a)(1) and Rule 10b-5(a), (c).
Scienter is “the mental state embracing [the] intent to deceive, manipulate or
defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S. Ct. 1375, 47 L. Ed.
2d 668 (1976). The SEC can prove scienter by demonstrating that Williams acted with
severe recklessness. Broad v. Rockwell Int'l Corp., 642 F.2d 929, 961 (5th Cir.
1981) (en banc). 8 “Severe recklessness is limited to those highly unreasonable
omissions or misrepresentations that involve not merely simple or even inexcusable
negligence, but an extreme departure from the standards of ordinary care, and that
present a danger of misleading buyers or sellers which is either known to the defendant
or is so obvious that the defendant must have been aware of it.” McDonald v. Alan
Bush Brokerage Co., 863 F.2d 809, 814 (11th Cir. 1989).
As an initial matter, the Court notes that Williams, in his motion for summary
judgment, does not address the element of scienter. (See generally, Dkt. 202) Williams
only opposes the SEC’s claim that he acted with scienter in response to the SEC’s
motion for summary judgment. As a result, the Court proceeds with the following
analysis based on the SEC’s motion for summary judgment and Williams’ response in
opposition thereto.
In the motion, the SEC argues Williams “knew his representations to investors

See Bonner v. City of Prichard, Ala., 661 F.2d 1206, 1207 (11th Cir.1981) (adopting as binding
precedent all decisions of the former Fifth Circuit issued on or before September 30, 1981).
8

72

were false because he directed both the transfer of KFYield assets to Lendacy and
Lendacy’s subsequent ‘loans’ to himself and his entities.” (Dkt. 200 at 35) The SEC
claims that he controlled both KFYield and Lendacy and their bank accounts. (Id.)
Second, the SEC asserts that he controlled the investment decisions for Kinetic
Funds and, as a result, knew that his representations to investors about the use of
investor assets, the performance of Kinetic Funds, and the source of Lendacy’s funding
were false. (Id. at 35-36) Third, the SEC claims he had ultimate authority over the
marketing materials and Bloomberg reports provided to investors. (Id.)
William raises two arguments in response. First, he claims that he did not have
ultimate control and authority over the Lendacy marketing materials. Second, he
asserts that he relied on the advice of his counsel and professional advisers when
distributing Kinetic Funds materials to investors. The Court addresses each ground in
turn.
In regard to the first category concerning the misrepresentation made in the
Lendacy marketing materials about the source of Lendacy’s funding, Williams claims
that the SEC does not state who led prospective investors to believe Lendacy had a
separate funding source or who led prospective investors to believe that their entire
capital would be invested in KFYield. The SEC points to the affidavit of a prospective
investor, Wilmer Gonzalez Vargas, who is the administrator of the Plan de Pensiones
Ministerial, Inc. (Ministerial Pension Plan) in Puerto Rico, to support its contention
that Williams led prospective investors to believe Lendacy had a separate funding
source and that their entire capital would be invested in KFYield.
73

The Ministerial Pension Plan was established in 1974 for the benefit of retired
ministers of the Iglesia de Dios Pentecostal, Movimiento Internacional, Region of
Puerto Rico. (Dkt. 200-50 at ¶ 4) Mr. Vargas stated that, at the beginning of 2017,
“with an interpreter, Williams and Kelly Locke came to the Pension Plan office and
made a presentation to him and the Pension Plan Board of Directors on investments
with Kinetic Funds as well as the opportunity to obtain loans through a related
company called Lendacy.” (Id. at ¶ 6) At the meeting, Mr. Vargas claims that
“Williams gave us a marketing brochure explaining Kinetic Funds, and in particular
the KFYield fund.” (Id.) Mr. Vargas also claims that “Williams spoke about investing
in KFYield and Locke explained the opportunity to obtain loans with Lendacy.” (Id.
at ¶ 7) The Pension Plan ultimately invested a total of $800,000.00 into KFYield. (Id.
at ¶ 13) However, Mr. Vargas states that the Pension Plan “was never told that the
money it invested in KFYield could be used to finance its own loans with Lendacy,”
“was never told that the money it invested in KFYield could be used to finance the
loans of others with Lendacy,” and “was never told that the money it invested in
KFYield could be used to finance Williams’s loans or Williams’s companies with
Lendacy.” (Id. at ¶¶ 14-16)
Williams, however, claims that he did not attend the Ministerial Pension Plan
meeting and, thus, cannot be held responsible for what Ms. Locke presented to Mr.
Vargas and others at that meeting. Specifically, Williams points to the deposition of
Carla Mendez, who acted as the interpreter at that meeting and testified that Williams
was not present. (Dkt. 221-3 at 23:16-18) Thus, Williams asserts that he has provided
74

evidence to create a factual dispute concerning his presence at the Ministerial Pension
Plan meeting.
The Court acknowledges that Williams has properly identified a dispute of fact
concerning his presence at the meeting. However, the dispositive issue for the Court
to resolve is whether a genuine dispute of material fact exists regarding whether
Williams made a material misrepresentation. See Rule 10b-5(b).
To recall, in Janus Capital, the Supreme Court held that a person may be held
primarily liable under § 10(b) and Rule 10b-5(b) for “making” a misleading statement
if he or she had “ultimate authority over the statement, including its content and
whether and how to communicate it.” 564 U.S. at 142. Accordingly, as an initial
matter, the Court does not agree with Williams’ view that he was required to be
physically present at the Pension Plan meeting to be deemed to have made a
misleading statement. See id. The key inquiry is whether he held “ultimate authority”
over the “content” of the marketing materials at issue and “whether and how to
communicate” those marketing materials to prospective investors. See id.
However, even with this standard in mind, questions of fact remain as to
whether Williams made this misrepresentation to Mr. Vargas, as contemplated by
Rule 10b-5(b) and Janus. Williams provides evidence to dispute the SEC’s contention
that he had ultimate authority and control over the contents of the Lendacy brochures
given to investors like Mr. Vargas.
The SEC contends that Williams began, in 2015, to market Kinetic Funds with
Lendacy. (Dkt. 200 at ¶ 19) In his Declaration, Williams states that he “did not have
75

an ownership interest in, control over, and exercise ultimate authority over Lendacy”
during the time period in question. (Dkt. 221-2 at ¶ 23) In his Responses to the SEC’s
Requests for Admissions, when asked to admit whether he controlled Lendacy,
Williams stated, in relevant part, that “Ms. Locke, for and on behalf of Lendacy, . . .
approved and created marketing materials . . . independently from, and without any
involvement of [him].” (Dkt. 200-14 at ¶ 5) In her deposition, Locke claimed the
opposite. She specifically testified that Williams had “ultimate authority over the
content of this Lendacy brochure.” (Dkt. 200-20 at 58) (emphasis added)
On this point, however, it is unclear which Lendacy brochure Ms. Locke is
referring to as the SEC provides only a portion of her testimony for the Court to review.
(See id.) The Court further notes it is unclear from the record whether all investors
received the same Lendacy brochures and when they received the brochures. Based on
the statements Williams made in his deposition, both of these questions appear to be
important for resolving the dispute of who had ultimate authority and control over the
contents of the Lendacy brochures given to investors.
When questioned about who had ultimate authority and control over Lendacy’s
marketing materials, Williams testified that “[w]hen Kelly took over, Kelly Locke.”
(Dkt. 200-15 at 58) According to Williams, Kelly Locke took over as President of
Lendacy in 2014. (Id.) Kelly Locke, however, testified that, while she did not “recall
the exact date that [her] title changed” from Operations Director of Lendacy to
President, she was promoted to President by “the time that [Kinetic Funds] moved to

76

Puerto Rico in 2016.” 9 (Dkt. 200-20 at 2) Williams, for his part, unequivocally admits
that prior to Locke becoming President, he exercised ultimate authority and control
over the Lendacy marketing materials. (Dkt. 200-15 at 229:19-22) Because the SEC
argues that Williams began to market Kinetic Funds with Lendacy in 2015, and
Williams disputes his ultimate authority and control over the Lendacy marketing
materials after Locke became President – which occurred at some point (likely) in 2016
– a genuine dispute of material fact remains as to whether Williams exercised ultimate
authority and control over Lendacy marketing materials given to investors throughout
the entire period (2015-2019) of the SEC’s investigation of this matter.
In short, at the summary judgment stage, the Court finds that the SEC has not
established Williams’ scienter as it relates to the question of who had ultimate
authority and control over the contents of the Lendacy marketing materials. Simply
put, if Williams did not “make” the misrepresentations and/or omission to investors
regarding the source of Lendacy’s funding, then he did not have the requisite “intent
to deceive, manipulate or defraud.” Ernst & Ernst, 425 U.S. at 193.
For each of the remaining categories, the SEC points to Kinetic Funds’
Operating Agreement and Kinetic Funds’ marketing materials to demonstrate that a
misrepresentation or omission was made. Unlike Lendacy and its marketing materials,

The Court is aware that the SEC has attached to its motion for summary judgment emails from Kelly Locke
from 2015 sent to different individuals, including Williams, in which her signature block states that she was the
“Operations Director” of Lendacy. (See Dkts. 33, 34; 36-38) As such, the Court believes that Locke likely
became President of Lendacy in 2016. However, even if true, as explained above, a dispute of fact remains as to
who exercised ultimate authority and control over the Lendacy marketing materials given to investors once
Locke became President.
9

77

Williams unequivocally admits he controlled Kinetic Funds. (See Defendant
Williams’ Responses to the SEC’s First Request for Admissions, Dkt. 200-14 at 1
(admitting control over Kinetic Group and Kinetic Funds)) However, to absolve
himself of liability, Williams pivots, asserting that he relied on the advice and guidance
of his attorneys and other professional advisers “to make sure that all materials
provided to potential and actual investors and all transactions between and among
Kinetic Group, Kinetic Funds, Kinetic Partners, LF42, Lendacy, Scipio, El Morro,
KIH, investors, members, shareholder and/or himself contained all necessary
disclosures and fully complied with all laws and regulations.” (Dkt. 221 at 31) (citing
Dkt. 221-2 at ¶¶ 65-69, 213-214)
To succeed with a defense of good faith reliance on the advice of counsel, the
defendant must show that 1) he has fully disclosed all relevant facts to his counsel and
2) he relied in good faith on his counsel’s advice. SEC v. Huff, 758 F. Supp. 2d 1288,
1348 (S.D. Fla. Sept. 30, 2010). See United States v. Parker, 839 F.2d 1473, 1482 (11th
Cir. 1988). Similarly, to succeed with a defense of good faith reliance on the advice of
his professional advisers, a defendant must show that: (1) he made a complete
disclosure to the professional, (2) he sought the advice of the professional as to the
appropriateness of the challenged conduct, (3) he received the professional’s advice
that the conduct was appropriate, and (4) he relied on that advice in good faith. Huff,
758 F. Supp. 2d at 1349.
As for the second category regarding Williams’ failure to disclose his majority
ownership of Lendacy, the Court finds that Williams’ scienter has been established in
78

regard to this omission.
As stated above, Williams testified that he believed it was not important for
investors to know that he was the majority owner of Lendacy. (See Dkt. 200-15 at 146)
But, when questioned as to why he believed it was not important for investors to know
this information, he responded, “[m]y attorney obviously did not feel it was necessary
to put it in [the Operating Agreement].” (Id.) In his Declaration, Williams states that
“Kinetic Funds’ attorneys drafted, reviewed, provided edits and comments, and
approved all versions of the Subscription Agreements, Offering Questionnaires, and
Operating Agreements before they were provided to Kinetic Funds’ prospective and
actual investors and to Kinetic Funds’ third-party referral agents.” (Dkt. 221-2 at ¶ 65)
Williams also states that he never approved providing those materials to a prospective
or actual investor or to a third-party referral agent “until [he] had first confirmed that
that version of the Subscription Agreement, Offering Questionnaire, or Operating
Agreement had been reviewed and approved by Kinetic Funds’ attorneys.” (Id. at ¶
66) Williams states that he “relied on the advice and guidance of Kinetic Funds’
attorneys and other professional advisers to make sure that all Subscription
Agreements, Offering Questionnaires, and Operating Agreements that Kinetic Funds
and I provided to potential and actual investors complied with all applicable laws and
regulations and properly and adequately made all necessary disclosures.” (Id.)
Notwithstanding Williams’ statements, Williams provides no evidence that he
fully disclosed all relevant facts to his counsel or made a complete disclosure of the
same to his professional advisers. Specifically, Williams does not state that he
79

informed his counsel or his professional advisers that he was diverting investor money
from KFYield to Lendacy in order to fund unsecured loans for himself and his entities.
(See generally, Dkt. 221-2) Williams produces no affidavit from his counsel or his
professional advisers demonstrating their knowledge that Williams was engaging in
this conduct. It is not at all clear that had they realized Williams was engaging in such
conduct, they would have agreed that it was not necessary for investors to be aware
(1) that the private-sector funding company referred to in the Operating Agreement
was Lendacy, and (2) that Williams held a majority ownership in Lendacy. Thus,
Williams’ scienter has been established as to this omission because Williams fails to
show that he made a complete disclosure of all relevant facts to his counsel and/or
professional advisers. See, e.g., Merchant Capital, LLC, 483 F.3d at 772 (advice of
counsel defense is only available if such advice “was based on a full and complete
disclosure” of the relevant facts).
Regarding the third category – whether all investor funds were invested in U.S.listed financial products – the Court finds that Williams’ scienter has been established
as to this misrepresentation. As mentioned above, Williams concedes that he “told
investors that their money would be invested in income-producing U.S. listed financial
products,” as reflected in the Kinetic Funds Operating Agreement. (Stipulation of
Agreed Material Facts, Dkt. 220 at ¶ 10) But, as the Court has already found above,
investor capital was instead diverted to Lendacy, which was not a U.S.-listed financial
product.
To dispute his scienter, Williams claims, in his Declaration, that he “relied on
80

the advice and guidance of my attorneys and other professional advisers to structure
all transactions between and among Kinetic Group, Kinetic Funds, Kinetic Partners,
LF42, Lendacy, Scipio, El Morro, KIH, investors, members, shareholder, and/or me
and to ensure that all such transactions fully complied with all laws and regulations.”
(Dkt. 221-2 at ¶ 214) He further claims that his attorneys reviewed all materials related
to Kinetic Funds that were provided to investors.
Williams identifies two individuals and one entity that provided him with such
advice. Williams states that: (1) Phillip Handin, Esq. – with Williams’ approval and
based on information he provided – prepared the offering documents for Kinetic Funds
and the corporate formation documents for his entities, (Dkt. 200-15 at 126:24-127:13,
137:20-138:1, 162:3-164:17, 165:5-17; Dkt. 221-2 at ¶¶ 4, 13, 18, 27, 40, 45, 50); (2)
BDO, an accounting firm, provided him advice on how to structure El Morro, (Dkt.
200-15 at 411:13-412:13); and (3) Jeanelle Alemar-Escabi, Esq. created the Lendacy
lines of credit, i.e. the Lendacy loans, for Scipio and LF42. (Id. at 413:25-415:21)
The problem for Williams is that he concedes none had any involvement in the
operation of Kinetic Funds, KFYield, or Lendacy. (Id. at 413-417) Williams does not
testify that any were aware that investor capital (or margin) was being transferred to
Lendacy, or that they provided him with the advice to make these transfers. Indeed,
the opposite is true because, by Williams’ own admission, his attorneys and other
professional advisers only reviewed, edited, and approved language in “Kinetic Funds’
marketing materials, brochures, newsletters, reports, and other information,” all of
which reflected the fact that investors’ money would be invested in U.S.-listed financial
81

products. (See Dkt. 221-2 at ¶¶ 67-68) None of the materials stated that investor capital
(or margin) would be transferred to Lendacy.
Because Williams cannot establish a good faith reliance defense on information
that was never disclosed to his counsel or professional advisers, the Court finds that
the SEC has established Williams’ scienter as a matter of law and that he knowingly
diverted investor funds to Lendacy. See, e.g., Merchant Capital, LLC, 483 F.3d at 772
(advice of counsel defense is only available if such advice “was based on a full and
complete disclosure” of the relevant facts). Notably, while Williams claims, in his
Responses to the SEC’s First Request for Admissions, that Ms. Locke “approved
banking and financial transactions [and] approved loans” on behalf of Lendacy (Dkt.
200-14 at ¶ 5), Williams later concedes in his deposition that his signature is on the
Signature Cards for both of Lendacy’s bank accounts, establishing that he was the
account holder for Lendacy’s bank accounts and thus controlled the bank accounts.
(Dkt. 200-15 at 248:13-257:6; Dkts. 200-62, 200-63)
The fourth category concerns whether Williams misrepresented to investors that
their principal would be secure because the KFYield portfolio would be hedged with
U.S.-listed options. The fifth category addresses Williams’ misrepresentation that the
KFYield assets had liquidity, and the seventh category concerns the misrepresentation
made to investors about KFYield’s portfolio performance. As above, Williams
contends that he “relied on the advice and guidance of his attorneys and other
professional advisers” to ensure that “all materials provided to potential and actual
investors . . . contained all necessary disclosures and fully complied with all laws and
82

regulations.” (Dkt. 221 at 30-31) Notwithstanding his testimony, Williams’ claim fails
because he does not state that he disclosed all relevant facts to his counsel or his
professional advisers.
Specifically, Williams does not state he informed his counsel or professional
advisers that he had actually hedged KFYield’s IB account with U.S.-listed options,
as opposed to the representation made to investors that he would hedge the KFYield
portfolio with U.S.-listed options. See supra (“Hedging the collateral that supported the
diverted funds, which Williams claims he did, is not equivalent to hedging investor
funds and not diverting them.”) (emphasis added). Regarding the liquidity of investor
assets in KFYield, Williams fails to state that he disclosed to his counsel and
professional advisers that he obtained unsecured loans funded by investor money for
the benefit of himself and his entities. (See generally, Dkt. 221-2) Williams also does
not state that he disclosed to his counsel and professional advisers that the Bloomberg
reports given to investors would fail to include KFYield’s margin balance or that his
counsel and professional advisers approved of such omission. (See id.) Because
Williams cannot establish a good faith reliance defense on information that was never
disclosed to his counsel or professional advisers, the Court finds that the SEC has
established Williams’ scienter as a matter of law and that he knowingly made these
misrepresentations to investors. See, e.g., Merchant Capital, LLC, 483 F.3d at 772.
The ninth category concerns Williams’ failure to disclose that he and his
entities, Scipio and LF42, received purported loans from Lendacy, while the tenth
category addresses the SEC’s claim that Williams failed to disclose his use of investor
83

assets to invest in Zephyr Aerospace. Williams concedes that his entity, LF42, “used
approximately $497,300.00 of the funds [$2,100,000] it borrowed on its [Lendacy]
credit lines to invest in Zephyr.” (Dkt. 221-2 at ¶ 202) As set forth above, these
categories also address Williams’ misappropriation of investor funds pursuant to Rule
10b-5(a), (c) and Section 17(a)(1).
As above, Williams’ attempt to establish a good faith reliance on counsel
defense fails. Williams concedes that Ms. Alemar-Escabi, who allegedly created the
Lendacy lines of credit for these loans, had no involvement in the operation of Kinetic
Funds, KFYield, or Lendacy. (Dkt. 200-15 at 415:17-21) This is a significant
concession because it means that Ms. Alemar-Escabi was unaware that Williams was
transferring investor assets from KFYield to Lendacy or, if true, using portfolio
margining to fund the Lendacy loans. Nor was Ms. Alemar-Escabi aware that it was
investor money being used for Williams’ personal benefit. On this record, Williams
has not established a good faith reliance on counsel defense because he provides no
evidence that he made a complete disclosure of these facts to Ms. Alemar-Escabi.
Because Williams proffers no other evidence to dispute the SEC’s evidence as to his
state of mind, and in light of his control over the bank accounts of Kinetic Funds and
Lendacy, the Court finds that no reasonable jury could conclude that Williams did not
act with scienter in making these omissions and engaging in these misappropriations.
See McDonald, 863 F.2d at 814. (See Dkt. 200-14 at ¶ 4; Dkt. 200-15 at 248:13-257:6;
Dkts. 200-62, 200-63)
In light of the foregoing, the Court finds that the SEC has established Williams
84

acted with scienter when making the misrepresentations and omissions referenced
above, pursuant to Rule 10b-5(b), and that he acted with the requisite scienter when
engaging in the misappropriation of investor funds for purposes of scheme liability,
pursuant to Rules 10b-5(a), (c), and Section 17(a)(1).
The Court also concludes that the SEC has established Williams acted with the
requisite scienter to establish scheme liability in an alternative manner. In Lorenzo, as
explained above, the Supreme Court ruled that scheme liability includes the
“dissemination of false or misleading material with intent to defraud,” 139 S.Ct. at
1100. See SEC v. Davison, No: 8:20-cv-325-MSS-AEP, 2021 U.S. Dist. LEXIS
140236 at *10 (M.D. Fla. Mar. 8, 2021) (“A defendant may be found to have
violated Rule 10b-5(a) or (c) if he “disseminate[s] false or misleading statements to
potential investors with the intent to defraud.”) (citation omitted).
Here, Williams’ knowing dissemination of materially misleading or false
Kinetic Funds materials to potential and actual investors that either misrepresented or
omitted: (a) Williams’ ownership of Lendacy (second category); (b) that investor’s
investment would only be invested in U.S.-listed financial products (third category);
(c) that investors’ principal would be secure because 90% of the KFYield portfolio
would be hedged with U.S.-listed options (fourth category); (d) that the KFYield assets
had liquidity (fifth category); (e) that KFYield’s reported portfolio performance
matched its actual performance (seventh category); (f) that he received loans from
Lendacy on behalf of himself and his entities (ninth category); and (g) that he used
investor money to invest in Zephyr Aerospace (tenth category) are sufficient to
85

establish scheme liability violations under Rule 10b-5(a), (c), and § 17(a)(1), (3).
Williams provides no evidence to demonstrate that he did not knowingly
distribute misleading or false materials to potential and actual investors that either
misrepresented or omitted the above categories. He attempts to evade responsibility
by claiming that he did not control the decisions of Kinetic Funds, which Kinetic
Group managed. Williams also claims that he did not form Kinetic Funds or manage
it. Those claims fail.
The SEC provides proof that Williams is the registered agent and managing
member of Kinetic Group. (See Dkt. 200-16 at 2, Articles of Organization for Florida
Limited Liability Company Kinetic Group). Williams also concedes that he filed a
Form D on behalf of Kinetic Funds with the SEC in October 2016, claiming an
exemption under Rule 506 (c) of the Securities Act for Kinetic Funds’ pooled
investment fund interests with a first sale date of October 2012. (Id.) Williams listed
himself as the “Managing Director” of Kinetic Funds on the form. (Dkt. 200-17 at 2,
5)
As set forth above, Williams claims that his attorney, Phillip. E. Handin, with
his approval and based on information he provided, prepared the offering documents
for Kinetic Funds and corporate formation documents for his various entities,
including Kinetic Funds. (Dkt. 221-2 at ¶¶ 27, 66) The Court has already set forth the
standard to establish a good faith reliance on the advice of counsel defense. Williams
fails to establish such a defense because he provides no evidence that he disclosed all
relevant facts to his counsel or that his counsel advised him that providing materials
86

that misrepresented or omitted the above categories of information was appropriate.
See SEC v. Meltzer, 440 F. Supp. 2d 179, 189 (E.D.N.Y. 2006) (rejecting good faith
reliance defense on summary judgment where “there [wa]s nothing in the record to
demonstrate that [defendant] made a complete disclosure, nor [wa]s there any
indication that counsel advised [defendant] that the conduct was appropriate”). As
explained above, Williams also concedes that Mr. Handin had no involvement in the
operation of Kinetic Funds. (See Dkt. 200-15 at 417:5-8)
In sum, Williams provides no evidence to dispute the SEC’s evidence that he
exercised control over Kinetic Funds and the materials that investors received. As
noted above, Williams also admits, in his Responses to the SEC’s First Request for
Admissions, that he controlled Kinetic Funds, thereby establishing that he knowingly
disseminated misleading or false materials to potential and actual investors in order to
attract them to invest in his hedge fund. (See Dkt. 200-14 at ¶ 4); see Lorenzo, 139
S.Ct. at 1100-02.
(2)
NEGLIGENCE UNDER SECTIONS 17(A)(2) AND
(A)(3)
The SEC argues that, even if the Court finds that Williams’ actions were not
conducted with scienter, the undisputed facts show that his actions were performed
negligently. (See Dkt. 200 at 36) Williams, relying on the same arguments made in
support of his contention that he did not act with scienter, asserts that the SEC has not
established that he “acted negligently when he relied on his attorneys and other
professional advisers for advice and guidance.” (Dkt. 221 at 31)
87

To establish negligence for purposes of Sections 17(a)(2), the SEC must show a
failure to exercise a standard of reasonable care. SEC v. City of Miami, 988 F. Supp.
2d 1343, 1362 (S.D. Fla. Dec. 27, 2013); see also S.E.C. v. Hughes Capital Corp., 124
F.3d 449, 453-54 (3d Cir. 1997) (describing negligence in securities context as the
failure to exercise reasonable care or competence). “Factual allegations supporting an
inference of scienter will also satisfy the lower standard of negligence required for
claims under Sections 17(a)(2) and (3) of the Securities Act.” SEC v. Complete Bus.
Sols. Group, 538 F. Supp. 3d 1309, 1331 (S.D. Fla. May 11, 2021) (citing S.E.C. v.
Coplan, No. 13-62127, 2014 U.S. Dist. LEXIS 22796, 2014 WL 695393, at *4 (S.D.
Fla. Feb. 24, 2014)).
In light of the Court’s finding that the SEC has sufficiently established their
scienter allegations on their Rule 10b-5 claims as it relates to the second (Williams’
ownership of Lendacy), third (Investment in U.S. listed financial products), fourth
(Secure Principal), fifth (the liquidity of KFYield’s assets), seventh (KFYield’s
portfolio performance), ninth (Williams’ purported loans) and tenth (Williams’
investment in Zephyr Aerospace) categories of misrepresentations and omissions, and
because the SEC claims that Williams negligently violated Section 17(a)(2), the
minimum state of mind of negligence has also been established as it relates to these
categories. See SEC v. Kingdom Legacy Gen. Partner, LLC, No. 2:16-cv-441-FtM38MRM, 2017 U.S. Dist. LEXIS 12717 at *21 (M.D. Fla. Jan. 31, 2017). The Court
also finds that Williams’ scheme liability has been established under Section 17(a)(3)
for the same reasons provided above.
88

Although the Court has found that Williams’ scienter has not been established
in regard to the first category of misrepresentation and/or omission made to investors
in Lendacy marketing materials about the source of Lendacy’s funding after Ms. Locke
became President of Lendacy, the Court concludes that there is no dispute of fact as
to whether Williams acted negligently under this category pursuant to Section
17(a)(2).
As an initial matter, unlike Rule 10b-5(b), there is no requirement that a
defendant “make” a misrepresentation for purposes of violating Section 17(a)(2). See
SEC v. Spartan Sec. Grp., Ltd., No. 8:19-cv-448-T-33CPT, 2019 U.S. Dist. LEXIS
94135 at *9 (M.D. Fla. June 5, 2019) (“As explained by the Eleventh Circuit, ‘any
attempts by the defendants to import the [Supreme] Court’s narrow holding [in Janus
Capital Corp. v. First Derivative Traders, 564 U.S. 135, 131 S. Ct. 2296, 180 L. Ed.
2d 166 (2011)] to the entirety of § 17(a) is untenable on its face.’”) (quoting Big Apple
Consulting, 783 F.3d at 796).
To recall, § 17(a)(2) renders it “unlawful for any person in the offer or sale of
any securities . . . to obtain money or property by means of any untrue statement of a
material fact or any omission to state a material fact.” (Emphasis added). In Big Apple
Consulting, the Eleventh Circuit held that “the text of [§ 17(a)(2)] suggests that . . . it
is irrelevant for purposes of liability whether the seller uses his own false statement or
one made by another individual.” 783 F.3d at 797 (citing SEC v. Tambone, 550 F.3d
106, 127 (1st Cir. 2008). Accordingly, the Court finds that Williams need not be the
maker of the statements made to investors in the Lendacy brochures in order to be held
89

liable under Section 17(a). See Spartan Sec. Grp., 2019 U.S. Dist. LEXIS 94135 at *910.
Turning to the evidence in the record, the Court concludes that the SEC has
established Williams’ negligence even if he did not “make” a misrepresentation or
omission concerning Lendacy’s funding source to investors.
Williams does not dispute that he obtained investor money (or margin from
investor money) in the form of loans from Lendacy for the benefit of himself and his
entities. (See Dkt. 221-2 at ¶¶ 169-210) The question, for purposes of § 17(a)(2), is
whether he obtained investor money “by means of any untrue statement of a material
fact or any omission to state a material fact.” See § 17(a)(2). At least one example
proves that he did and that it was, at a minimum, in a negligent manner.
Regarding the $2,755,000.00 purchase of the historic bank on behalf of his
entity, Scipio, Williams concedes in his deposition that he “was aware” investor funds
were withdrawn from Kinetic Funds in that approximate amount, and then
subsequently transferred to Lendacy on behalf of Scipio in order for the loan to be
made to Scipio. (See Dkt. 200-15 at 347:1-348:19) Williams claims that Lendacy staff
authorized the deposits of those sums, but even if true, Williams relied on their false
statements and/or omissions to investors concerning the source of Lendacy’s funding
in order to obtain investor money for his benefit. See Big Apple Consulting, 783 F.3d
at 797. That reliance was negligent as no reasonable juror could find that Williams
exercised reasonable care or competence by receiving approximately $3 million in a
loan he admits he knew was funded by investor money in order to purchase a bank on
90

behalf of an entity in which he concedes he is the majority owner of. (See id. at 87) To
recall, Williams has already conceded that: (1) the Operating Agreement investors
received from Kinetic Funds never disclosed that Williams or his entities would
receive loans from Lendacy; (2) the Operating Agreement explicitly stated that their
investment would only be invested in U.S.-listed financial products; and (3) Lendacy
is not a U.S.-listed financial product. (Dkt. 220 at ¶¶ 8, 10, 12) In light of the foregoing,
the Court finds that the SEC has established Williams’ negligence as it relates to the
omission made to investors concerning the source of Lendacy’s funding.
Considering the factual disputes noted above, the Court will proceed with the
remaining sections by focusing on Williams’ misappropriations and the first
(Lendacy’s funding source), second (Williams’ ownership of Lendacy), third
(Investment in U.S. listed financial products), fourth (Secure Principal), fifth (the
liquidity of KFYield’s assets), seventh (KFYield’s portfolio performance), ninth
(Williams’ purported loans) and tenth (Williams’ investment in Zephyr Aerospace)
categories of misrepresentations and omissions.
e.
WHETHER THE MISREPRESENTATIONS, OMISSIONS, AND
MISAPPROPRIATIONS WERE MADE “IN CONNECTION WITH”
THE OFFERING, PURCHASE OR SALE OF SECURITIES
Williams claims that since the SEC has not specifically identified when each of
the misrepresentations and omissions were made, “it is impossible to know if they
were made ‘in connection with’ the offer, purchase or sale of securities. For example,
[he contends] it is possible they were made three months after the investors had already
91

invested or one year before they had even begun thinking of making an investment.”
(Dkt. 221 at 28) (emphasis in original). Williams also contends that Plaintiff has not
identified a specific securities transaction that the alleged misappropriations are “in
connection with” because the SEC only points to misappropriations that occurred after
the investors had already invested in Kinetic Funds. (Id. at 28-29); (see also Dkt. 202
at 9-10) The SEC, however, argues that the “in connection with” requirement was met
because “there is no dispute that investors received offering documents and marketing
materials for Kinetic Funds that misrepresented and omitted the use of investor capital,
the misappropriation of investor funds, and the performance of KFYield.” (Dkt. 227
at 19)
“Federal courts have interpreted the ‘in connection with’ requirement broadly,
(SEC v. Zandford, 535 U.S. 813, 819-20, 122 S. Ct. 1899, 153 L. Ed. 2d 1 (2002)),
particularly when the SEC is the plaintiff, (SEC v. Rana Research, Inc., 8 F.3d 1358,
1362 (9th Cir. 1983) (in SEC actions, the meaning of the ‘in connection with’
requirement ‘remains as broad and flexible as is necessary to accomplish the statute’s
purpose of protecting investors.’)).” SEC v. Langford, 2:08-cv-761-AKK, 2011 U.S.
Dist. LEXIS 171320 at *13 (N.D. Ala. Aug. 8, 2011). Thus, “whenever assertions are
made . . . in a manner reasonably calculated to influence the investing public,” the ‘in
connection with’ requirement is satisfied. SEC v. Tex. Gulf Sulphur Co., 401 F.2d 833
(2d Cir. 1968).
Here, the record evidence establishes that the “in connection with” requirement
has been satisfied. Investors received a Subscription Agreement, Operating
92

Agreement, Offering Questionnaire, and Kinetic Funds’ marketing brochures. (See
Dkt. 200 at ¶¶ 11-14) However, the documents misrepresented or failed to disclose
that: (1) the source of Lendacy’s funding was investor money, (2) that Williams was
the majority owner of Lendacy, (3) that not all of the investors’ money would be
invested in income-producing U.S. listed products, (4) that investors’ principal was not
secured because at least 90% of the KFYield portfolio was not hedged with U.S.-listed
options, (5) that KFYield’s assets had liquidity, (6) that the performance of the
KFYield portfolio was actually worse than what was represented in the Bloomberg
reports, (7) that Williams and his entities received loans from Lendacy, and (8) that
Williams would invest investors’ capital in Zephyr Aerospace. Thus, in light of the
“broad” meaning of the “in connection with” requirement, and because investors
received and relied upon misleading materials, the Court finds that the requirement
has been satisfied. See SEC v. Merkin, No. 11-23585, 2012 U.S. Dist. LEXIS 155679,
2012 WL 5245561, at *8 (S.D. Fla. Oct. 3, 2012) (stating that the “in connection with”
requirement is satisfied if the SEC shows that the material misrepresentations were
relayed to the public in a way that a reasonable investor would rely on them).
As for Williams’ contention that the misrepresentations and omissions may
have been made after the investors had made an investment into Kinetic Funds,
Williams’ argument is without merit. “It is well established that ‘[b]ecause this is a
civil enforcement action brought by the SEC, reliance, damages, and loss causation
are not required elements [when alleging a securities fraud claim].’ See SEC v. Morgan

93

Keegan & Co., 678 F.3d 1233, 1244 (11th Cir. 2012).” Kingdom Legacy, 2017 U.S.
Dist. LEXIS 12717 at *11. See also SEC v. Smith, No. C2-cv-04-739, 2005 U.S. Dist.
LEXIS 21427 at * (S.D. Ohio, Sept. 27, 2005) (“The point in time in which the
investors received [the marketing materials] need not have been before they purchased
the security[.]”).
Regarding his misappropriation of investor funds, Williams asserts that the SEC
has failed to establish the “in connection with” requirement because the
misappropriations occurred after investors invested in Kinetic Funds. (See Dkt. 202 at
10; Dkt. 221 at 28-29) This claim similarly fails.
In Zandford, the SEC alleged that the stockbroker violated Rule 10b-5 by selling
his customers’ securities and then using the proceeds for his own benefit without the
customer’s knowledge or consent. 535 U.S. at 815. The defendant also made wire
transfers that enabled him to withdraw specified sums from his customers’ accounts.
Id. at 816. As explained in Zandford, some of those transfers involved the defendant
writing checks to himself from a mutual fund account held by his clients, “knowing
that redeeming the check[s] would require the sale of securities.” Id. at 821. Defendant
argued that the sales of the securities themselves were lawful and that, even though the
subsequent misappropriation of the proceeds was fraudulent, “the alleged scheme
[was] not materially different from a simple theft of cash or securities in an investment
account.” Id. at 820. Thus, he contended that the “in connection with” requirement
was not satisfied because the subsequent misappropriation of investor proceeds did not
have the requisite connection with the sales of securities. The Supreme Court
94

disagreed, holding that, because the SEC’s complaint “describe[d] a fraudulent scheme
in which the securities transactions and breaches of fiduciary duty coincide,” “[t]hose
breaches were therefore ‘in connection with’ securities sales within the meaning of”
Section 10(b). Id. at 825.
Here, Williams’ misappropriations similarly coincided with the purchase of
securities for KFYield investors. Williams concedes that when investors deposited
their capital into Kinetic Funds’ bank account in order to invest in KFYield (Dkt. 2212 at ¶ 90), he kept a portion of investor capital in the bank account and transferred the
remainder to Kinetic Funds’ brokerage account at IB. (Dkt. 220 at ¶ 18) Williams
concedes that securities for KFYield were then purchased with a combination of
investor capital and margin, i.e., funds borrowed from its broker, IB. (Id. at ¶19)
Williams testified that any “additional [or uninvested] cash” could then be used for
“private equity or Lendacy.” (Dkt. 200-15 at 198:16 – 199:3); (Dkt. 221-1 at 49) 10
Although Williams claims that the cash ultimately used to fund the Lendacy loans he
and his entities received was margin from IB, he does not and cannot dispute that the
source of the margin came from investor capital in the first instance. Thus, whether
Williams used investor capital or margin to fund the Lendacy loans, Williams
misappropriated investor cash by using such cash to fund the Lendacy loans he

Notably, Williams’ deposition testimony and opposition to the SEC’s motion for summary judgment
appears to prove the SEC’s case against him. In likely a slip-of-the-tongue, Williams first testifies in his
deposition that, after purchasing securities for KFYield with a combination of investor capital and margin, any
“additional [or uninvested] cash” could then be used for “private equity or Lendacy.” (Dkt. 200-15 at 198:16 –
199:3); (Dkt. 221-1 at 49) (emphasis added) However, he later testifies that “margin,” as opposed to investor
“cash,” was the source of the funding for the Lendacy loans. (Dkt. 200-15 at 199:22-24) However, the Court
has found that Williams’ asserted distinction makes no difference and does not drive the decision here.
10

95

received for the benefit of himself and his entities. In sum, the Court finds that the
purchase of KFYield securities on margin coincided with the deposit of investor
money into Lendacy (i.e. the misappropriations), thereby satisfying § 17(a)’s “in the
offer or sale” and § 10(b)’s “in connection with the purchase or sale” of a security
requirements. See Zandford, 535 U.S. at 825.
f.
WHETHER THE OFFERING, PURCHASE, OR SALE OF
SECURITIES WERE OFFERED OR SOLD THROUGH THE USE OF
INTERSTATE COMMUNICATIONS, COMMERCE, OR THE MAILS

The SEC claims that Williams misused and misappropriated investor assets
through wire transactions. (Dkt. 200 at 34) Williams argues that, because the SEC has
failed to identify a specific investor to whom the purported misrepresentations and
omissions were made, “it is impossible to know if . . . those misrepresentations were
made by means of interstate commerce and/or the mails.” (Dkt. 221 at 29) Willaims
further contends that the SEC has failed to identify any record evidence of emails sent
to investors. (Id. at 30)
As above, Williams is mistaken in his contentions. Reliance is not an element
the SEC is required to establish to prove a securities fraud violation. See Morgan
Keegan & Co., 678 F.3d at 1244. But even if Williams were correct, his claim would
still fail. The SEC provides record evidence, through the deposition of Ms. Locke, that
investor capital was wire-transferred to the Kinetic Funds bank account, and a portion
was then transferred to IB for investment in KFYield. (See Dkt. 227-3 at 2); see also
SEC v. Cole, No. 17-56196, 2024 U.S. App. LEXIS 2665 at *4 (9th Cir. 2024)
96

(“interstate commerce” requirement satisfied because the wire transfers occurred
through different banks and financial institutions in different states). There is no
dispute that BMO Harris Bank, which maintained the Kinetic Funds bank account,
was located in Sarasota, Florida. (See e.g., Dkts. 200-13, 200-29 Further, there is no
dispute that investors were located at least in Florida and Puerto Rico. (See e.g., Dkt.
200-20 at 11, 49-50)
Williams also admits that marketing materials and offering documents were emailed to investors and Kinetic Funds sales agents. (See, e.g., Dkt. 200-15 at 121:1221 (regarding an email sent to an agent, Williams testified that “[t]here was a client at
Consultiva that was interested in investing. They contacted us, requested the account
opening document procedures and so we forwarded the account opening document
procedures, which included the subscription agreement, the questionnaire, the
operating agreement, and the exhibits.”)) The Eleventh Circuit has held that “the
internet is an instrumentality of interstate commerce.” United States v. Hornaday, 392
F.3d 1306, 1311 (11th Cir. 2004).
Based on the foregoing, the Court finds that the SEC established that the alleged
misrepresentations, omissions, and misappropriations were made by use of an
“instrumentality of interstate commerce.” See §17(a); Rule 10b-5.
In sum, the SEC has established that Williams misappropriated investor funds
and engaged in the following categories of misrepresentations and omissions – first
(Lendacy’s funding source), second (Williams’ ownership of Lendacy), third
(Investment in U.S. listed financial products), fourth (Secure Principal), fifth (the
97

liquidity of the KFYield assets), seventh (KFYield’s portfolio performance), ninth
(Williams’ purported loans) and tenth (Williams’ investment in Zephyr Aerospace).
Further, Williams acted with the requisite scienter for each of the misappropriations,
misrepresentations, and omissions referenced above under § 17(a)(1), (3) and Rule
10b-5, except for the first category concerning Lendacy’s funding source, which the
Court finds he nevertheless acted with the requisite negligence to sustain a finding of
a violation under §17(a)(2). Finally, the SEC has established that the “in connection
with” and the “interstate commerce” requirements have been met.
As a result, although the SEC has not established Williams engaged in each
category of misrepresentations and omissions referenced above, the Court nevertheless
finds that summary judgment is due to be GRANTED in favor of the SEC. See
Morgan Keegan & Co., 678 F.3d at 1248 (“[t]he SEC enjoys the authority to seek relief
for any violation of the securities laws, no matter how small or inconsequential…. The
SEC thus may seek a civil penalty against any defendant who has made a single
misstatement or omission, [pursuant to Rule 10b-5], if material and made with scienter
and in connection with the purchase or sale of securities.”); see also Big Apple
Consulting, 783 F.3d at 798 (“[T]o show a violation of § 17(a), ‘[i]t is not necessary
that the SEC prove that the [d]efendants engaged in all three types of conduct’ set forth
in subsections (1) - (3). Instead, as properly instructed, ‘[a]ll that the SEC needs to
prove to prevail is that the [d]efendants engaged in any one of the types of conduct.’).
Here, the SEC has established a violation of all three types of conduct under both
statutes.
98

3.

VIOLATIONS OF THE ADVISERS ACT (COUNTS VII, IX, XI, XIII)

Section 206(1) of the Advisers Act prohibits any investment adviser from,
directly or indirectly, employing any device, scheme, or artifice to defraud any client
or prospective client. Section 206(2) of the Advisers Act prohibits any transaction,
practice, or course of business that operates as a fraud or deceit upon any client or
prospective client. Section 206(4) of the Advisers Act, which is modeled on Sections
206(1) and (2), prohibits an investment adviser from, directly or indirectly, engaging
in any act, practice, or course of business that is fraudulent, deceptive, or manipulative.
The language of these provisions “is drawn from § 17(a)(1) and (3) of the Exchange
Act” and conduct falling within § 17(a)(1) and (3) will fall within the analogous
provisions of § 206 when committed by an investment adviser against a client or
prospective client. See Steadman I.
“In order to establish a violation, each of these sections requires the SEC to
show the investment adviser made a material misrepresentation with a culpable mental
state.” ZPR Inv. Mgmt v. SEC, 861 F.3d 1239, 1247 (11th Cir. 2017) (citing Steadman
I, aff’d, 450 U.S. 91, 101 S. Ct. 999, 67 L. Ed. 2d 69 (1981) (interpreting sections
206(1)-(2)); SEC v. Steadman, 967 F.2d 636, 643, 647, 296 U.S. App. D.C. 269 (D.C.
Cir. 1992) (“Steadman II”) (interpreting section 206(4))). “While the materialmisrepresentation element is the same for all three sections, the mental-state element
for section 206(1) is different than that for sections 206(2) and (4).” ZPR Inv. Mgmt.,
861 F.3d at 1247 (citations omitted). “Section 206(1) requires the SEC to show the
adviser acted with scienter.” Id. (citing Steadman I, 603 F.2d at 1134). “Sections
99

206(2) and (4) require no showing of scienter, and a showing of negligence is
sufficient.” See id. (citing Steadman II, 967 F.2d at 643 n.5, 647).
The SEC contends that Williams was an “investment adviser” within the
meaning of the Advisers Act and that he engaged in multiple conflicts of interest, all
of which form the basis of the misrepresentations, omissions, and misappropriations
referenced above. (Dkt. 200 at 37-40) As demonstrated above, Williams
violated Sections 206(1), (2), and (4) of the Advisers Act because the SEC has shown
all of the elements for liability under Section 17(a) of the Securities Act and Rule 10b5 of the Exchange Act, which are more stringent than the requirements to
violate Sections 206(1), (2), and (4) of the Advisers Act. See SEC v. Lauer, No. 0380612-CIV-MARRA/JOHNSON, 2008 U.S. Dist. LEXIS 73026 at *91 (S.D. Fla.
Sept. 23, 2008). Thus, the remaining question is whether Williams acted as an
“investment adviser” for Kinetic Funds, which Williams disputes. (See Dkt. 202 at 1213; Dkt. 221 at 30-31)
Section 202(a)(11) defines an “investment adviser” as “any person who, for
compensation, engages in the business of advising others, either directly or through
publications or writings, as to the value of securities or as to the advisability of
investing in, purchasing, or selling securities.” 15 U.S.C. § 80b-2(a)(11). “This
definition encompasses anyone who manages the funds of others for compensation or
controls an investment advisory firm.” SEC v. Nutmeg Grp., LLC, 162 F. Supp. 3d
754, 772 (N.D. Ill. Feb. 18, 2016) (citing SEC v. ABS Manager, LLC, 2014 U.S. Dist.
LEXIS 175071, 2014 WL 7272385, at *4 (S.D. Cal. Dec. 18, 2014); SEC v. Bolla, 401
100

F. Supp. 2d 43, 59 (D.D.C. 2005) aff’d in part and remanded sub nom. SEC v.
Washington Inv. Network, 475 F.3d 392, 374 U.S. App. D.C. 383 (D.C. Cir.
2007); SEC v. Berger, 244 F. Supp. 2d 180, 192 (S.D.N.Y. 2001). (Dkt. 200 at 38)
(citations omitted). The SEC points to record evidence to establish that Williams is an
investment adviser.
First, Defendant Kinetic Group is an investment adviser for Kinetic Funds, a
private pooled investment fund. (Dkt. 200 at 10) The SEC relies on Williams’
deposition testimony, in which he concedes that Kinetic Funds is “a private equity
investment fund” and that Kinetic Group managed Kinetic Funds. (Dkt. 200-15 at
53:8-10, 60:12-16); (see also Stipulation of Agreed Material Facts, Dkt. 200-20 at 1
(noting that Kinetic Funds “filed a Form D with the SEC in October 2016 claiming an
exemption under Rule 506(c) for its pooled investment fund interests”)) (emphasis
added) Thus, Defendant Kinetic Group acted as an investment adviser for Kinetic
Funds.
The SEC next points to evidence that Williams founded, managed, and
controlled Kinetic Group. In his deposition, Williams admits that his attorneys formed
Kinetic Group at his direction. (Dkt. 200-15 at 61:8-16) Next, in the Articles of
Organization for Kinetic Group, Williams designated himself as the registered agent
and managing member of Kinetic Group. (See Dkt. 200-16 at 2). And in his Responses
to the SEC’s First Request for Admissions, Williams admits that he controlled Kinetic
Group. (Dkt. 200-14 at 1)

101

Williams also carried out Kinetic Group’s responsibilities as an investment
adviser by directing Kinetic Funds’ investments, communicating with investors about
Kinetic Funds’ investment strategy and performance, and soliciting investors to
Kinetic Funds. In the Joint Stipulation of Agreed Material Facts, Williams concedes
that he told investors that their money would be invested in income-producing U.S.
listed financial products (Dkt. 220 at ¶ 10), that he advised investors that Kinetic Funds
was a conservative blended fund and that their principal would be secure because the
KFYield portfolio would be hedged with listed options, (id. at ¶ 13), and that he
created the investment strategy for Kinetic Funds. (Id. at ¶ 23). This conduct “brings
him within the bounds of the term ‘investment adviser,’ for purposes of the Advisers
Act.” See SEC v. Lauer, 478 Fed. Appx. 550, 557 (11th Cir. 2012) (finding that Lauer
was an investment adviser because he “proffered advice directly to the Funds’ investors
when he hosted meetings and teleconferences with investors, and when he suggested
in the Funds' newsletter that his market strategy could beat market returns”)
Importantly, Williams received compensation for providing advice to investors.
The SEC points to the Operating Agreement that investors received, which provided
that the Class B and Class C member investors would be charged a 1% management
fee for the operation of the funds. (Dkt. 200-6 at 8, 13) Ms. Locke also testified in her
deposition that Kineitc Group charged Kinetic Funds a 1% management fee. (Dkt.
200-20 at 69) Because Williams admits that he managed and controlled Kinetic Group,
Williams received the 1% management fee, through Kinetic Group, for managing

102

Kinetic Funds. (Dkt. 200-14 at ¶ 1) 11 In sum, Williams, like Kinetic Group, meets the
definition of an “investment adviser.”
Williams disputes the SEC’s evidence on multiple grounds, all of which fail.
First, he claims that his attorneys formed Kinetic Group, not him. But, as explained
above, Williams admits that his attorneys formed Kinetic Group at his direction. (Dkt.
200-15 at 61:8-16)
Second, he claims that he is not “presently” the managing member of Kinetic
Group because the Court granted the SEC’s Motion for Asset Freeze and Other Relief
and Emergency Motion for Appointment of Receiver on March 6, 2020, appointing
Mark A. Kornfeld as receiver for Kinetic Group. (See Dkt. 221-2 at ¶¶ 5, 7) Third, he
claims that the SEC has not established Kinetic Group “presently” charges Kinetic
Funds a 1% management fee for the same reason. (See id. at ¶¶ 34, 36) However,
Williams does not dispute that he was the managing member of Kinetic Group or that
Kinetic Group received a 1% management fee at the time of the purported Advisers Act
violations. Williams’ arguments are without merit.
Williams also points to his Declaration, in which he attempts to raise a dispute
of fact by stating he “did not engage in the business of advising others as to the value
of securities or as to the advisability of investing in, purchasing, or selling securities”

The Court notes that the Operating Agreement provides that Kinetic Partners, LLC (not Kinetic
Group) is the Class A Member. (Dkt. 200-6 at 6, 11) But, as noted above, Williams concedes that
Kinetic Group managed Kinetic Funds and was, thus, the Class A member. (Dkt. 200-15 at 53:8-10,
60:12-16) But whether Kinetic Group or Kinetic Partners, LLC is the Class A member does not affect
Williams’ liability because Williams is also the managing member of Kinetic Partners, LLC. (See Dkt.
200-13)
11

103

and that he “did not receive any compensation advising [others] as to the value of
securities or as to the advisability of investing in, purchasing, or selling securities.”
(Dkt. 221-2 at ¶¶ 219-223) His statements, however, are contradicted by his own
admissions as set forth above. See supra. A “court may disregard an affidavit submitted
solely for the purpose of opposing a motion for summary judgment when that affidavit
is directly contradicted by deposition testimony.” McCormick v. City of Fort
Lauderdale, 333 F.3d 1234, 1240 (11th Cir. 2003). Here, Williams’ affidavit is
contradicted not only by his deposition testimony but also by his other admissions on
file and other evidence in the record. Consequently, the Court rejects Williams’
assertions.
In sum, Williams’ liability under the Advisers Act has been established under
Counts VII, IX, XI, and XIII. In light of the Court’s finding, the Court need not
address whether Williams aided and abetted Kinetic Group’s Adviser Act Violations
under Counts VIII, X, XII, and XIV.
IV.

REMEDIES

The SEC seeks disgorgement, prejudgment interest, permanent injunctive relief,
and a civil penalty against Williams. (Dkt. 1 at 21-23) The SEC, however, believes it
appropriate to address the issue of remedies after liability has been determined. (Dkt.
200 at 36 n. 138)
a. Disgorge Williams’ Ill-Gotten Gains
“Disgorgement is designed both to deprive a wrongdoer of unjust enrichment
and deter others from violating the securities laws.” Lauer, 2008 U.S. Dist. LEXIS
104

73026 at *93-94 (citing SEC v. First City Fin. Corp., 281 U.S. App. D.C. 410, 890 F.2d
1215, 1230 (D.C. Cir. 1989); SEC v. Manor Nursing Centers, 458 F.2d 1082, 1103-04
(2d Cir. 1972) (“the effective enforcement of the federal securities laws requires that
the SEC be able to make violations unprofitable”). “Where, as here, the fraud is
pervasive, the Court should order the wrongdoer to disgorge all profits stemming from
the scheme.” Lauer, 2008 U.S. Dist. LEXIS 73026 at *94 (citing CFTC v. British Am.
Commodity Options Corp., 788 F.2d 92, 93-94 (2d Cir.), cert. denied, 479 U.S. 853,
107 S. Ct. 186, 93 L. Ed. 2d 120 (1986)). “The District Court has broad discretion not
only in determining whether or not to order disgorgement but also in calculating the
amount to be disgorged.” Lauer, 2008 U.S. Dist. LEXIS 73026 at *94 (citing SEC v.
First Jersey Sec. Inc., 101 F.3d 1450, 1475 (2d Cir. 1996), cert. denied, 522 U.S. 812,
118 S. Ct. 57, 139 L. Ed. 2d 21 (1997)).
The burden on the SEC for “showing the amount of assets subject to
disgorgement (and therefore available for freeze) is light.” SEC v. ETS Payphones,
Inc., 408 F.3d 727, 735 (11th Cir. 2005). All that is required is “a reasonable
approximation of a defendant's ill-gotten gains. . . . Exactitude is not a
requirement.” Id.; First City, 890 F.2d at 1231. “It is well recognized that it is often
impossible to calculate disgorgement with precision and exactitude.” Lauer, 2008 U.S.
Dist. LEXIS 73026 at *94-95 (citation omitted). “Any risk of uncertainty about the
exact amount received falls on the wrongdoer whose illegal conduct created the
uncertainty.” Lauer, 2008 U.S. Dist. LEXIS 73026 at *95 (citing SEC v. Inorganic
Recycling Corp., 2002 U.S. Dist. LEXIS 15817, 2002 WL 1968341 (S.D.N.Y.
105

2002) (stating that the risk of uncertainty falls on defendants since fraudsters rarely
keep accurate records of the proceeds of their crimes)). “Once the SEC makes a
demonstration, the burden shifts to the defendant to demonstrate that he received less
than the full amount sought to be disgorged.” Lauer, 2008 U.S. Dist. LEXIS 73026 at
*95 (citing SEC v. Robinson, 2002 U.S. Dist. LEXIS 12811, 2002 WL 1552049 at *56 (S.D.N.Y. 2002)).
Here, as in Lauer, the Court finds that the issue of damages is “heavily factintensive.” Lauer, 2008 U.S. Dist. LEXIS 73026 at *95. In this case, the amount to be
disgorged is limited to the amount, with interest, by which Williams profited from the
wrongdoing. Securities and Exchange Commission v. Blatt, 583 F.2d 1325, 1335 (5th
Cir. 1978). 12 Because this determination is necessarily very fact-intensive, “the Court
declines to determine the amount of damages on the instant motion for summary
judgment.” Lauer, 2008 U.S. Dist. LEXIS 73026 at *95. The Court deems it prudent
to reserve on the question of the amount that should be disgorged until it has had an
opportunity to conduct an evidentiary hearing on the issue. See id. at *95-96.
b. PERMANENTLY ENJOINING WILLIAMS
“The SEC is entitled to a permanent injunction if it establishes a prima facie
case of previous violations of the securities laws and a reasonable likelihood the
defendant will repeat the wrongs.” Lauer, 2008 U.S. Dist. LEXIS 73026 at *91 (citing

12

See Bonner v. City of Prichard, Ala., 661 F.2d 1206, 1207 (11th Cir.1981) (adopting as binding
precedent all decisions of the former Fifth Circuit issued on or before September 30, 1981).

106

S.E.C. v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004)). “It is important to remember
the SEC appears in this matter ‘not as an ordinary litigant, but as a statutory guardian
charged with safeguarding the public interest in enforcing the securities laws.’” Lauer,
2008 U.S. Dist. LEXIS 73026 at *91 (quoting SEC v. Management Dynamics,
Inc., 515 F.2d 801, 808 (2d Cir. 1975)) Thus, the SEC need not show irreparable injury
or a balance of the equities in its favor. Lauer, 2008 U.S. Dist. LEXIS 73026 at *91
(citing SEC v. Unifund SAL, 910 F.2d 1028, 1036 (2d Cir. 1990).
In light of the SEC’s position that it deems it appropriate to address the issues
of remedies after liability has been determined, the Court shall reserve on whether the
SEC is entitled to a permanent injunction until the Parties have either briefed or
presented argument on this issue at the evidentiary hearing on damages.
C.

CIVIL PENALTIES

The SEC seeks civil penalties against Williams pursuant to Section 20(d) of the
Securities Act, Section 21 (d) of the Exchange Act, and Section 209(e) of the Advisers
Act. “The purpose of a civil penalty is to punish the individual violator as well as deter
future violations.” Lauer, 2008 U.S. Dist. LEXIS 73026 at *96 (citing SEC v. Kenton
Capital, Ltd., 69 F. Supp. 2d 1, 17 (D.D.C. 1998)). The SEC has not provided a
specific penalty amount that it seeks to impose upon Williams. However, the SEC has
requested that the Court retain jurisdiction over this matter in order “to entertain any
suitable application or motion by the Commission for additional relief within the
jurisdiction of this Court.” (Dkt. 1 at 23) To the extent the SEC seeks to impose a civil
penalty upon Williams, it shall file an appropriate motion requesting such relief.
107

V.

CONCLUSION

Upon consideration of the foregoing, it is hereby ORDERED as follows:
1. Defendant Michael Scott Williams’ Motion for Judgment on the Pleadings,
(Dkt. 201) is DENIED AS MOOT.
2. Plaintiff’s Motion for Summary Judgment against Defendant Michael Scott
Williams, (Dkt. 200) is GRANTED.
3. The SEC has established Williams engaged in the following misrepresentations
and omissions, in violation of Section 17(a)(2) and Rule 10b-5(b) (Counts II, V):
a. Williams negligently obtained investor money by means of an omission
regarding the source of Lendacy’s funding. (First Category)
b. Williams knowingly misrepresented to investors that their investment
would be invested in U.S.-listed financial products, instead diverting their
capital to Lendacy, which he was the majority owner of. (Third
Category)
c. Williams knowingly misrepresented to investors that their principal
would be secure because 90% of the KFYield portfolio would be hedged
with U.S.-listed options. (Fourth Category)
d. Williams knowingly misrepresented to investors that the KFYield assets
had liquidity. (Fifth Category)
e. Williams knowingly misrepresented the performance of the KFYield
portfolio. (Seventh Category)

108

f. Williams failed to disclose to investors that he and his entities, Scipio,
and LF42, were receiving loans from Lendacy. (Ninth Category)
g. Williams failed to disclose to investors that he used investor capital,
routed to LF42 from Lendacy, to invest in Zephyr Aerospace. (Tenth
Category).
4. The SEC has established Williams’ scheme liability because he engaged in
multiple misappropriations of investor funds in violation of § 17(a)(1), (3) and
Rule 10b-5 (a), (c) (Counts I, III-IV, VI). Further Williams’ knowing
dissemination of misleading materials establishes scheme liability in an
alternative manner because he acted with an “intent to deceive, manipulate or
defraud.” Ernst & Ernst, 425 U.S. at 193.
5. The SEC has established Williams violated the Advisers Act (Counts VII, IX,
XI, XIII) as he engaged in material misrepresentations and/or omissions and
acted as an “investment adviser” within the meaning of the Act in light of his
control over Defendant Kinetic Group, which managed Kinetic Funds.
6. The amount Williams is to pay in disgorgement and prejudgment interest
thereon is reserved until an evidentiary hearing can be held on the amount of
damages. The Court also reserves on whether the SEC is entitled to a permanent
injunction against Williams until the Parties have either briefed or presented
argument on this issue at the evidentiary hearing on damages. The Court
reserves jurisdiction to impose civil money penalties against Williams. The SEC

109

may file an appropriate motion for civil penalties within 60 days of the entry of
summary judgment in favor of the Commission.
7. Defendant Michael Scott Williams’ Motion for Summary Judgment is
DENIED.
DONE and ORDERED in Tampa, Florida, this 22nd day of November 2024.

Copies furnished to:
Counsel of Record
Any Unrepresented Person

110