Securities And Exchange Commission v. The Nutmeg Group, LLC et al

Filing 616

WRITTEN Opinion entered by the Honorable Jeffrey T. Gilbert on 2/6/2013: Motion and status hearing held on 2/4/13. Defendant Randall Goulding's Motion for Sanctions Due to Multiple Frauds on the Court, etc. #545 and Defendant David Goulding's Motion for Sanctions Due to Multiple Frauds on the Court, etc. #548 are denied for the reasons stated on the record. However, the order entered on 9/1/10 #230 by the late Judge William J. Hibbler, who previously presided over this case, is annotated in one respect for the reasons discussed below in light of one of the arguments raised by Defendants in their Motions. Motion to Quash by Alan D. Lasko and Alan D. Lasko & Associates, P.C. #561 is granted in part and denied in part for the reasons stated on the record. The parties also reported on the status of various matters discussed in the Court's order of 1/18/13 #611 . Continued status hearing set for 2/26/13 at 10:00 a.m. (See Written Opinion for further details.) Mailed notice(mr, )

Order Form (01/2005)

United States District Court, Northern District of Illinois
Name of Assigned Judge
or Magistrate Judge

Sharon Johnson Coleman

CASE NUMBER

09 C 1775

CASE
TITLE

Sitting Judge if Other
than Assigned Judge

DATE

Jeffrey Gilbert
2/6/2013

Securities And Exchange Commission vs. The Nutmeg Group, LLC et al

DOCKET ENTRY TEXT

Motion and status hearing held on 2/4/13. Defendant Randall Goulding’s Motion for Sanctions Due to
Multiple Frauds on the Court, etc. [545] and Defendant David Goulding’s Motion for Sanctions Due to
Multiple Frauds on the Court, etc. [548] are denied for the reasons stated on the record. However, the order
entered on 9/1/10 [230] by the late Judge William J. Hibbler, who previously presided over this case, is
annotated in one respect for the reasons discussed below in light of one of the arguments raised by
Defendants in their Motions. Motion to Quash by Alan D. Lasko and Alan D. Lasko & Associates, P.C.
[561] is granted in part and denied in part for the reasons stated on the record. The parties also reported on
the status of various matters discussed in the Court’s order of 1/18/13 [611]. Continued status hearing set for
2/26/13 at 10:00 a.m. (See Statement for further details.)
O[ For further details see text below.]

Notices mailed by Judicial staff.

02:00

STATEMENT
1. Although Defendants’ Motions for Sanctions [545, 548] are denied for the reasons
stated at length and in detail on the record, the Court believes that one matter raised by
Defendants needs to be addressed specially. In an order entered on 9/1/10 [230], the late Judge
William J. Hibbler, who previously presided over this case, ordered Defendant Randall Goulding
to produce to the Receiver and the SEC “evidence of investor approval of the Carried Interest or
Mercury [Fund] Interest Increase . . . .” Defendants maintained at the time, and still maintain, that
the Receiver already had in her possession whatever documents Nutmeg or Defendants had in
their possession relating to investor approval of the referenced subjects when Nutmeg shut down,
or that the Receiver had abandoned whatever such documents existed in Nutmeg’s offices
concerning those subjects.
The issue was before the Court in September 2010 because the Receiver had filed a motion for a rule
to show cause why Defendants should not be held in contempt of court for failing to produce the documents
relating to Mercury Fund investor approvals and many other documents then being sought by the SEC and
the Receiver [180]. Years after the fact, when Defendant Randall Goulding finally reviewed the Receiver’s
documents himself, he found documents evidencing investor approval of the matters referenced in Judge
Hibbler’s order of 9/1/10 [230]. It turns out that the Receiver Leslie Weiss had in her possession all along
these documents that the Receiver had requested from Goulding in 2010, just as Goulding had said at the
time. Accordingly, it now appears that the motion for a rule to show cause was not well-founded as to those
documents when it was filed back in April 2010 [180].
The Receiver maintains that she did not know she already had these documents when she requested
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STATEMENT
them from Defendants. She also maintains that Defendants represented to her back in 2010 that documents
evidencing the relevant investor approval were on a computer disk or hard drive when, as it turns out, the
Receiver had them in hard copy. Whether the Receiver had the documents in hard copy or on a computer
disk or hard drive, however, the fact remains that she had them in her possession when she filed a motion for
a rule to show cause why Defendants should not be held in contempt of court for not providing those
documents to the Receiver. This misstatement continues to irk Defendants to this day.
Had Judge Hibbler known that the Receiver actually was in possession of these documents relating to
Mercury Fund investor approval of the referenced matters when he was considering the Receiver’s motion
for a rule to show cause [180], I am confident he would not have ordered Defendant Randall Goulding to
produce them. As a practical matter, the Receiver in all likelihood would have withdrawn her motion in that
respect since she withdrew other parts of her motion for a rule to show cause when the matters were resolved
by the parties [see., e.g., DE#230: “All other matters requested in the Rule to Show Cause motion are
resolved”].
To be sure, Judge Hibbler did not formally grant the motion for rule to show cause in his order of
9/1/10 [230]. But he nevertheless ordered Defendant Randall Goulding to produce the documents sought by
the Receiver relating to Mercury Fund investor approval [Id.] as requested in the Receiver’s motion.
Accordingly, this order will be linked via this docket entry and Statement on the CM/ECF system to the order
entered by Judge Hibbler on 9/1/10 [230] so that the record is clear that Defendant Randall Goulding did not
fail or refuse to produce to the SEC or the Receiver the documents relating to Mercury Fund investor
approval of the matters referenced in Judge Hibbler’s 9/1/10 order [230]. As stated above, the Receiver
already had those documents in her possession, and the Receiver was incorrect to assert that she did not have
those documents back in 2010. As discussed on the record during the hearing on Defendants’ motions for
sanctions, however, I do not find it necessary or appropriate to impose sanctions on either the Receiver or the
SEC in connection with this long-standing controversy. I see no evidence of an intentional fraud,
concealment or conspiracy here. And the sanction Defendants seek – payment of all of the fees they
expended in defending against the Receiver’s motion for a rule to show cause – is excessive under the
circumstances since there is no suggestion that all of the other issues raised in the Receiver’s motion also
were without merit. Accordingly, for the reasons discussed in full on the record, the Court denies the
Motions for Sanctions [545, 548] in this and all other respects.
2. The Motion to Quash by Alan D. Lasko and Alan D. Lasko & Associates, P.C. [561] is
granted in part and denied in part for the reasons stated on the record. The Motion is denied with
respect to Request Nos. 4, 5 and 18 in the Rider to the Subpoena to Lasko [561-1] and granted in
all other respects. Lasko shall produce the documents sought by Request Nos. 4, 5 and 18 to the
Receiver who shall make those documents available for inspection and copying by Defendants
along with the other documents the Receiver (by her counsel) is collecting for Defendants’ review
– see paragraph 3 below.
For the reasons discussed on the record, Lasko’s obligation to respond to Request No. 18 is limited to
Schedules D and M in the federal tax returns filed by the Receiver on behalf of Nutmeg and any of its Funds
for the years 2009, 2010, 2011 and 2012 (when that return is filed), together with any schedules, worksheets,
exhibits or like documents referenced in those Schedules D and M and attached to the tax returns as filed
with the Internal Revenue Service. This order is without prejudice to Defendants’ ability to seek any other
particularized information that is necessary to explain or understand Schedules D or M in the future should
that need arise after the documents have been produced and reviewed, and to Lasko’s ability to object to
production of that information in the future.
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STATEMENT
To be clear, the Court could have ordered that these documents be produced directly to Defendants by
Lasko. The Court, however, is ordering that the documents be produced to the Receiver so that the Receiver
can make these and other documents discussed in this order available for inspection and copying by
Defendants, and so Defendants do not have to continue to deal with Lasko to inspect the documents. The
Receiver did not object to Defendants requesting these documents from Lasko; indeed, the Receiver
encouraged Defendants to follow that procedure because she objected to spending the time, effort and money
to produce these documents to Defendants herself. The Court is aware that “the receivership estate is
severely depleted.” [615] Still, the Court finds this round-about procedure – force Defendants to serve a
subpoena on Lasko, the accountant, for documents that Lasko prepared for the Receiver to file with the I.R.S.
on behalf of Nutmeg and the Nutmeg Funds – to be unnecessarily cumbersome in the context of the case as it
now stands and as discovery is winding down. The Court recognizes, though, that relations between the
parties were more fraught with conflict several years ago when this round-about mechanism for responding to
Defendants’ requests for information was suggested. The temperature seems to have receded a little since
then, however, and the Receiver does not object (or does not object strenuously) to facilitating this document
production in this way. Indeed, the Receiver’s counsel suggested during the hearing that Lasko send him the
documents to be produced.
As discussed on the record, if Lasko still desires to do so, he shall submit as soon as possible via the
Proposed Order Folder on the Court’s website a separate draft order in keeping with 26 U.S.C. §
7216(b)(1)(B) to the extent this order is not sufficient for that purpose. (If this order is sufficient for Lasko’s
purposes or no separate order is required because Lasko simply is producing the tax return Schedules to the
Receiver standing in the shoes of the taxpayer(s), he shall so inform the Court’s courtroom deputy and no
additional order need be prepared or submitted.) In any event, the Receiver shall make the documents
available for review by Defendants subject to an appropriate protective order to be submitted by Plaintiff
SEC after consultation with Defendants and the Receiver. The SEC shall submit as soon as possible a draft
protective order limiting the use of the tax return information being produced to this case and the matters
involved in this case as discussed on the record.
3. Following the hearing held on 1/18/13 [611], Defendant Randall Goulding sent
counsel for the Receiver a proposal ostensibly aimed at narrowing Defendants’ Requests for
Production Nos. 6 and 7 in line with the Court’s rulings on 1/18/13. Counsel for the Receiver and
Defendant Randall Goulding pro se reported on that development and the Receiver’s efforts to
collect documents responsive to Defendants’ “narrowed” Requests for Production. Once those
documents are in a place that they can be made available for Defendants’ review, counsel for the
Receiver will notify Defendant Randall Goulding.
4. Status hearing set for 2/26/13 at 10:00 a.m. for a continued report on the Receiver’s
efforts to make these documents as well as Schedules D and M (and related materials as discussed
above) available for Defendants’ review.
It is so ordered.

09C1775 Securities And Exchange Commission vs. The Nutmeg Group, LLC et al

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