Securities and Exchange Commission v. Ahmed et al

Filing 28

TEMPORARY RESTRAINING ORDER: IT IS HEREBY GRANTED that the SEC's Motion for Temporary Restraining Order 4 is GRANTED. Signed by The Hon. Paul A. Magnuson on 05/09/2017. (LLM). cc: James Alexander on 5/9/2017 (KNK).

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
United States Securities and
Exchange Commission,

Civil No. 17-sc-1478 (PAM/KMM)

Plaintiff,
v.

TEMPORARY RESTRAINING ORDER

Mohamud Abdi Ahmed, and
2waytrading, LLC,
Defendants.

This matter is before the Court on Plaintiff Securities and Exchange Commission’s
(“SEC”) Emergency Motion for a Temporary Restraining Order, Asset Freeze, and Other
Ancillary Relief. On Friday, May 5, 2017, the Honorable Donovan W. Frank of this
Court entered a limited TRO (Docket No. 25), pending this Court’s hearing on the matter.
The Court held that hearing today, at which Plaintiff appeared through counsel but
Defendants made no appearance.
Based on the arguments of counsel, and all of the papers filed in support of the
Motion, the Court makes the following factual findings:
A.

This Court has jurisdiction over the subject matter of this case and there is

good cause to believe it will have jurisdiction over all parties hereto.
B.

The SEC has made a prima facie showing that Defendants have engaged in

acts, practices, and transactions that constitute violations of Sections 17(a) of the
Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77q(a); Section 10(b) of the
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Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5
thereunder, 17 C.F.R. § 240.10b-5; and Sections 206(1) and (2) of the Investment
Advisers Act of 1940 (the “Advisers Act”), 15 U.S.C. § 80b-6(1) and (2), by using any
means or instrumentality of interstate commerce, or of the mails, or of any facility of any
national securities exchange.
C.

There is good cause to believe that investor funds will be dissipated,

concealed, or transferred from the jurisdiction of this Court, assets which could be subject
to an order of disgorgement.
D.

There is good cause to believe that an accounting of assets and expedited

discovery is necessary, and that, unless restrained or enjoined by order of this Court,
Defendants may alter or destroy documents relevant to this action.
E.

There is good cause to believe that an order requiring Defendants to

provide a schedule identifying any individuals, clients, or investors who paid Defendants
monthly fees for services and/or who provided Defendants access to brokerage or other
accounts, and the accounts so accessed is necessary.
Based on these findings, IT IS HEREBY ORDERED that:
1.

The SEC’s Motion for Temporary Restraining Order (Docket No. 4) is

GRANTED.
2.

Defendants, and their officers, agents, servants, employees, attorneys,

subsidiaries, and affiliates, and those persons in active concert or participation with any
of them, who receive actual notice of this Order, by personal service or otherwise, are

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TEMPORARILY RESTRAINED and ENJOINED from, directly or indirectly, in the
offer or sale of any securities, by the use of any means or instruments of transportation or
communication in interstate commerce or by the use of the mails:
A.

employing any device, scheme or artifice to defraud;

B.

obtaining money or property by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order to
make the statements made, in light of the circumstances under which they
were made, not misleading; or

C.

engaging in any transaction, practice, or course of business which operates
or would operate as a fraud or deceit upon the purchaser;

in violation of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a).
3.

Defendants, and their officers, agents, servants, employees, attorneys,

subsidiaries, and affiliates, and those persons in active concert or participation with any
of them, who receive actual notice of this Order, by personal service or otherwise, are
TEMPORARILY RESTRAINED and ENJOINED from, directly or indirectly, in
connection with the purchase or sale of any security, by the use of any means or
instrumentality of interstate commerce, or of the mails, or of any facility of any national
securities exchange:
A.

employing any device, scheme or artifice to defraud;

B.

making any untrue statement of a material fact or omitting to state a
material fact necessary in order to make the statements made, in the light of

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the circumstances under which they were made, not misleading; or
C.

engaging in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any person;

in violation of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5
thereunder, 17 C.F.R. § 240.10b-5.
4.

Defendants, and their officers, agents, servants, employees, attorneys,

subsidiaries, and affiliates, and those persons in active concert or participation with any
of them, who receive actual notice of this Order, by personal service or otherwise, are
TEMPORARILY RESTRAINED and ENJOINED from, directly or indirectly, by the
use of mails or means or instrumentalities of interstate commerce:
A.

employing devices, schemes and artifices to defraud clients or prospective
clients; or

B.

engaging in transactions, practices, and courses of business which operate
as a fraud or deceit upon clients or prospective clients;

in violation of Sections 206(1) and (2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) and
(2).
5.

Until otherwise ordered by this Court, all investors, creditors, and other

persons, and all others acting on behalf of any such investor, creditor, or other persons,
including sheriffs, marshals, other officers, deputies, servants, agents, employees, and
attorneys, are STAYED from:

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A.

commencing, prosecuting, continuing, or enforcing any suit or proceeding
against or affecting any assets frozen pursuant to the Court’s May 5, 2017,
Order;

B.

using self-help or executing or issuing or causing the execution or issuance
of any court attachment, subpoena, replevin, execution, or other process for
the purpose of impounding or taking possession of or interfering with or
creating or enforcing a lien upon any assets frozen by the Court’s May 5,
2017, Order, wherever situated; and

C.

attempting to modify, cancel, terminate, call, extinguish, revoke, or
accelerate (the due date), of any lease, loan, mortgage, indebtedness,
security agreement, or other agreement affecting any assets frozen by the
Court’s May 5, 2017, Order.
6.

Defendants, within three days of the issuance of this Order, shall prepare

and deliver to the SEC a sworn accounting that shall consist of a detailed and complete
schedule of all of their personal assets, including all real and personal property exceeding
$5,000 in value, and all bank, securities, and other accounts identified by institution,
branch address, and account number. The accounting shall include a description of the
sources and locations of all such assets. Such accounting shall be filed with the Court
and a copy shall be delivered to the SEC to the attention of Lynn M. Dean, counsel for
the SEC. After completion of the accounting, Defendants shall produce to the SEC at a
time agreeable to the SEC all books, records, and other documents supporting or

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underlying their accounting.
7.

Any person who receives actual notice of this Order by personal service or

otherwise, and who holds, possesses, or controls assets exceeding $5,000 for the account
or benefit of either of the Defendants, shall within three days of receiving actual notice of
this Order provide counsel for the SEC with a written statement identifying all such
assets, the value of such assets, or best approximation thereof, and any account numbers
or account names in which the assets are held. Such a statement shall be delivered to the
SEC to the attention of Lynn M. Dean, counsel for the SEC.
8.

Defendants, within three days of the issuance of this Order, shall prepare

and deliver to the SEC a sworn schedule that shall consist of a detailed and complete list
of the following regarding any person who sought or received services or advice from
Defendants or who invested monies with Defendants (a “Client”):
A.

For any Clients who paid a monthly or other form of compensation or fee to
Defendants, the schedule shall identify the name of the Client, the starting
and ending date of the services, if any, provided by Defendants to the
Client, a description of the services provided, the total amount paid by the
Client, and the name of the account to which such payments were made
identified by institution, branch address, and account number.

B.

For any Clients who enrolled in the “Managed Small Account” or similar
program, as alleged in the SEC’s Complaint, the schedule shall identify: (1)
the name of the Client, (2) the name of the broker-dealer that housed the

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client’s securities trading account, the name on the account and the account
number; (3) the starting and ending date of the services provided under
such a program; (4) a description of the services provided; (5) the total
amount paid by the Client to Defendants, including a breakdown of how
much of that amount came in the form of monthly fees, upfront or
“commitment” fees, profit-sharing or any other category of payment; and
(6) the name of the account to which such payments were made identified
by institution, branch address, and account number.
C.

The schedule shall be filed with the Court and a copy shall be delivered to
the SEC to the attention of Lynn M. Dean, counsel for the SEC. After
delivery of the schedule, each Defendant shall produce to the SEC at a time
agreeable to the SEC all books, records, and other documents supporting or
underlying the schedule provided by Defendants.

9.

The SEC’s request for expedited discovery concerning Defendants, their

assets and activities, is GRANTED and commencing with the time and date of this
Order, in lieu of the time periods, notice provisions, and other requirements of Rules 26,
30, 33, 34, 36, and 45 of the Federal Rules of Civil Procedure and the corresponding
Local Rules of this Court, discovery shall proceed as follows:
A.

Pursuant to Rule 30(a) of the Federal Rules of Civil Procedure, the parties
may take depositions upon oral examination on two days’ notice of any
such deposition. Depositions may be taken Monday through Saturday. As

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to Defendants and their agents, servants, promoters, employees, brokers,
associates, and any person who transferred money to or received money
from the bank, financial institution, or third-party payment processor
accounts identified above, the SEC may depose such witnesses after
serving a deposition notice by facsimile, hand or overnight courier upon
such individuals, and without serving a subpoena on such witness.
Deposition transcripts that have not been signed by the witness may be used
for purposes of the hearing on the SEC’s application for preliminary
injunction.
B.

Pursuant to Rule 33(a) of the Federal Rules of Civil Procedure, each party
may serve up to ten interrogatories, including subparts, which shall be
answered within three days of service of such interrogatories.

C.

Pursuant to Rule 34(b) of the Federal Rules of Civil Procedure, each party
may serve document requests, and responsive documents shall be produced
within three days of service of such request.

D.

Pursuant to Rule 36(a) of the Federal Rules of Civil Procedure, each party
may serve no more than 20 requests for admissions, and responses shall be
served within three days of such requests;

E.

Pursuant to Rule 45 and the applicable provisions in the Securities Act and
Exchange Act, each party may serve subpoenas to third parties, subject to
approval by the Court; and

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F.

All discovery requests and responses may be served via email, facsimile, or
by hand on counsel for the parties.

10.

Nothing in this Order shall be construed to require that Defendants abandon

or waive any constitutional or other legal privilege that they may have available to them.
11.

The Order entered by the Honorable Donovan W. Frank on May 5, 2017,

temporarily freezing assets, enjoining Defendants from taking any action with respect to
any securities brokerage or similar account in which Defendants are not the named
owner, and enjoining Defendants from destroying documents shall continue in full force
and effect until the expiration of this Temporary Restraining Order.
12. This Temporary Restraining Order shall expire at 5:00 p.m. on May 18,
2017, unless for good cause shown it is extended or the parties against whom it is
directed consent that it may be extended for a longer period.
13.

Defendants shall appear before the undersigned at 11:00 a.m. on May 18,

2017, in Courtroom 7D of the Warren E. Burger Federal Building and U.S. Courthouse,
316 N. Robert St., St. Paul, Minnesota, to show cause, if any, why a preliminary
injunction should not be granted. Any submissions in support of the issuance of such an
Order shall be filed with the Court and delivered to the offices of the Defendants or their
attorneys no later than 12:00 p.m. on May 15, 2017. Any submissions in opposition to
such an Order shall be filed with the Court and delivered to Lynn M. Dean, counsel for
the SEC (at the SEC’s Los Angeles office, 444 South Flower St., Suite 900, Los Angeles,
CA 90071) no later than 12:00 pm on May 16, 2017, and any reply papers shall be filed

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with the Court and delivered to opposing counsel no later than 12:00 p.m. on May 17,
2017. Should the parties wish to present witness testimony at the hearing, they shall first
seek permission from the Court and inform the opposing party of the name, address,
telephone number of any such witness, and either a summary of the witness’ expected
testimony, or the witness’ affidavit or declaration revealing the substance of such
witness’ expected testimony at least three days before the hearing.
14.

The Complaint, Ex Parte Motion for a Temporary Restraining Order, Asset

Freeze, and Other Ancillary Relief, all pleadings, exhibits, and other papers filed in
support thereof, and all Orders entered by the Court are hereby UNSEALED.

Dated:

May 9, 2017

s/ Paul A. Magnuson
Paul A. Magnuson
United States District Court Judge

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