Securities and Exchange Commission v. Cope et al

Filing 283

MEMORANDUM OPINION AND ORDER: Ms. de Maisons November 1 motion for relief is granted in part. The Freeze Order shall be modified to allow for the payment of $93,478.65 to the law firm of Davis Wright Tremaine LLP and for the payment of $25,000 to de Maison as compensation for her efforts in connection with the sale of real estate. (Signed by Judge Denise Cote on 12/23/2016) (hm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES AND EXCHANGE COMMISSION,
:
:
Plaintiff,
:
:
-v:
:
JASON COPE, IZAK ZIRK DE MAISON (F/K/A):
IZAK ZIRK ENGELBRECHT), GREGORY
:
GOLDSTEIN, STEPHEN WILSHINSKY, TALMAN :
HARRIS, WILLIAM SCHOLANDER, JACK
:
TAGLIAFERRO, VICTOR ALFAYA, JUSTIN
:
ESPOSITO, KONA JONES BARBERA, LOUIS
:
MASTROMATTEO, ANGELIQUE DE MAISON,
:
TRISH MALONE, KIERNAN T. KUHN, PETER
:
VOUTSAS, RONALD LOSHIN, GEPCO, LTD.,
:
SUNATCO LTD., SUPRAFIN LTD.,
:
WORLDBRIDGE PARTNERS, TRAVERSE
:
INTERNATIONAL, and SMALL CAP RESOURCE :
CORP.,
:
:
Defendants,
:
And
:
:
ANGELIQUE DE MAISON,
:
:
Relief Defendant.
:
-------------------------------------- X

14cv7575 (DLC)
MEMORANDUM OPINION
AND ORDER

APPEARANCES:
For Angelique de Maison:
Jeffrey B. Coopersmith
Lauren Rainwater
Davis Wright Tremaine LLP
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
For the Securities and Exchange Commission:
Howard A. Fischer
John O. Enright
Securities & Exchange Commission - New York Regional Office
Brookfield Place, 200 Vesey Street
New York, New York 10281

DENISE COTE, District Judge:
Angelique de Maison (“de Maison”) brings this motion for
relief from an asset freeze.

Specifically, de Maison seeks the

release of: (1) $93,478.65 to cover incurred, as well as future,
attorneys’ fees; and (2) $100,000 to cover living expenses and
as compensation for her efforts to sell her properties.

For the

reasons set forth below, de Maison’s motion for relief from a
freeze to allow for payment of attorneys’ fees is granted.

The

request for living expenses, construed as a request for
compensation, is granted in part.
BACKGROUND
This action commenced in September 2014, when the SEC filed
a complaint against de Maison, her then husband Izak Zirk de
Maison (f/k/a Izak Zirk Engelbrecht) (“Engelbrecht”), and others
for violating various provisions of the Securities Act of 1933
and the Securities Exchange Act of 1934.1

On October 22, 2014,

the Court entered a preliminary injunction order, enjoining the
defendants from committing federal securities violations and
freezing the assets of certain defendants and their spouses,
including de Maison (the “Freeze Order”).

An amended complaint was filed on June 15, 2015, in which de
Maison was named a relief defendant.
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While the Freeze Order was in place, de Maison entered into
two stipulations with the SEC allowing her to complete the
contracted sale of several of her properties.

Pursuant to the

terms of these stipulations, de Maison was required to deposit
the proceeds of these sales into a trust account managed by her
attorneys, the Davis Wright Tremaine LLP law firm (“Davis
Wright”).

The proceeds from de Maison’s sale of her properties

currently amounts to $612,551.64.
On December 23, 2015, the Court so ordered a Consent
between de Maison and the SEC (the “Consent”).

Pursuant to the

terms of the Consent, de Maison agreed to eventually pay
disgorgement of her ill-gotten gains, in addition to a civil
penalty.

While the SEC has not yet moved for disgorgement and

penalties, it submits that it is “more likely than not that
either disgorgement or penalties -- not to mention a combination
of disgorgement and penalties -- would be greater than the
amount of liquid assets subject to the freeze that are currently
held in Davis Wright’s trust account.”
Ms. de Maison filed the present motion for relief from the
Freeze Order on November 1, 2016.
submitted on December 1.

The motion became fully

On December 16, the Court ordered the

SEC to respond to two questions concerning its opposition to de
Maison’s motion.

The SEC filed its responsive letter on
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December 20.
DISCUSSION
The Second Circuit has recognized that keeping assets
frozen may, under certain circumstances, “thwart the goal of
compensating investors if the freeze were to cause such
disruption of defendants’ business affairs that they would be
financially destroyed.”

SEC v. Manor Nursing Ctrs., Inc., 458

F.2d 1082, 1106 (2d Cir. 1972).

To modify a freeze order to

permit the payment of attorneys’ fees or living expenses, an
applicant must establish that “such a modification is in the
interest of the defrauded investors.”

SEC v. Grossman, 887 F.

Supp. 649, 661 (S.D.N.Y. 1995), aff’d sub nom. SEC v. Estate of
Hirshberg, 101 F.3d 109 (2d Cir. 1996).

The applicant must

further establish that the funds she seeks to release are
“untainted,” and that there are “sufficient funds to satisfy any
disgorgement remedy.”

SEC v. Stein, 07cv3125, 2009 WL 1181061

at *1 (S.D.N.Y. Apr. 30, 2009).

The touchstone of this inquiry

is equity: “[T]he disadvantages and possible deleterious effect
of a freeze must be weighed against the considerations
indicating the need for such relief.”

SEC v. Manor Nursing

Ctrs., Inc., 458 F.2d 1082, 1106 (2d Cir. 1972).
With respect to requests for attorneys’ fees, a party
“bears the burden of establishing entitlement to an award and
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documenting the appropriate hours expended and hourly rates.”
Hensley v. Eckerhart, 461 U.S. 424, 437 (1983).

With respect to

requests for living expenses, courts may consider whether the
defendant has any additional sources of income and whether the
defendant is seeking funds for luxuries rather than necessities.
See, e.g., SEC v. Dowdell, 175 F. Supp. 2d 850, 854 (W.D. Va.
2001).2

See also SEC v. Sterling Foster & Co., Inc., 97cv1077,

2000 WL 687469, at *1 (S.D.N.Y. May 26, 2000) (describing the
court’s previously entered freeze order as providing an
exception to allow the defendant to “withdraw or transfer a
total of $10,000 per month from his account . . . for living
expenses”); SEC v. Scott, Gorman Muns., Inc., 407 F. Supp. 1383,
1388 (S.D.N.Y. 1975) (“[T]he Court will issue an order imposing
the temporary freeze of the individual defendants’ personal
assets (except for ordinary living expenses) . . . .”).

There is disagreement over the standards under which a court
may modify a freeze order to allow for the payment of a
defendant’s living expenses. See, e.g., Dowdell, 175 F. Supp.
2d at 854-55 (allowing for the release of $4,000 per month to
meet a defendant’s living expenses where the defendant did not
have alternate sources of income, was not seeking funds for
luxuries, and the SEC did not oppose the request). But see SEC
v. Schiffer, 97cv5853, 1998 WL 307375, at *7 (S.D.N.Y. June 11,
1998) (limiting the release of funds to meet the defendant’s
living expenses only to “those necessary to maintain assets
subject to ultimate liquidation and disgorgement”).
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I. Attorneys’ Fees
Ms. de Maison requests that the Court release $78,478.65 to
pay Davis Wright the legal fees it has incurred to date, and to
set aside an additional $15,000 to cover any future fees Davis
Wright attorneys may incur in bringing this matter to a close.
This request amounts to a total of $93,478.65 in attorneys’
fees.

The SEC does not oppose this request.

Here, Ms. de Maison has adequately shown that the use of
frozen funds to pay for attorney’s fees is in the interest of
defrauded investors.

As both parties here agree, Davis Wright

has “conducted itself in such a way as to increase the amount of
funds available to compensate defrauded investors” by
cooperating with the SEC and acting expeditiously in
facilitating the sale of de Maison’s real estate.

Due to Davis

Wright’s efforts, the SEC was able to avoid having to appoint a
receiver in this action.

Furthermore, Davis Wright ensured de

Maison’s availability to meet with the SEC’s enforcement staff,
and settled the SEC action promptly without requiring the SEC to
expend significant public resources in a prosecution of this
action.

Accordingly, this Court finds that equity favors a

release of $93,478.65 to pay Davis Wright LLP its attorneys’
fees.

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II. Compensation for Real Estate Work
Ms. de Maison seeks $100,000 to cover her living expenses.
She contends that this request should be construed as a request
for partial compensation for the 1,736 hours of work she spent
selling her properties, which helped increase the amount of
recovery available for defrauded investors.
The SEC challenges de Maison’s request on two grounds.
First, the SEC contends that de Maison is not legally entitled
to modify the freeze order to allow for payment of living
expenses.

Second, even if de Maison’s request is construed as a

request for compensation for her real estate efforts, her
proposed compensation figure is inflated.

As the SEC explains,

a reasonable proxy for compensation would be the commission that
a real estate broker would typically earn, which the parties
agree here is approximately 4%.

Accepting that the total value

of properties sold by de Maison amounts to approximately $2
million, a 4% commission rate would amount to $82,700 in
compensation.

But, as the SEC points out, de Maison has not

clarified whether any other real estate professional received
some compensation in connection with these sales.

Accordingly,

the SEC submits that should the Court choose to compensate de
Maison for her efforts in recovering additional funds for
defrauded investors, it should only award $25,000, which
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constitutes approximately 4% of the $612,551.64 in net (rather
than gross) proceeds de Maison helped recover for investors
through her real estate efforts.
Here, de Maison has failed to show that equity favors
further depleting the already inadequate disgorgement in favor
of paying her living expenses and personal obligations.

Insofar

as de Maison’s motion is construed as a request for
compensation, however, the motion is granted in the amount of
$25,000.

Ordinarily, a court will not modify a freeze order

where there are insufficient funds to satisfy any disgorgement
remedy that may be ordered.

But where it is undisputed that de

Maison’s efforts to sell her real estate benefitted the
defrauded investors, the balance of equities favors a
modification of the Freeze Order.

Accordingly, de Maison shall

receive $25,000 as compensation for her efforts to increase the
amount of funds available to compensate defrauded investors.

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CONCLUSION
Ms. de Maison’s November 1 motion for relief is granted in
part.

The Freeze Order shall be modified to allow for the

payment of $93,478.65 to the law firm of Davis Wright Tremaine
LLP and for the payment of $25,000 to de Maison as compensation
for her efforts in connection with the sale of real estate.
Dated:

New York, New York
December 23, 2016
__________________________________
DENISE COTE
United States District Judge

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