Securities and Exchange Commission v. Shavers et al

Filing 110

MEMORANDUM OPINION AND ORDER re 109 Order to Show Cause. Having considered the evidence and the record in this case, the Court finds Defendant in civil contempt.It is further ORDERED that Shavers shall be imprisoned for civil contempt. Shave rs shall turn himself into the U.S. Marshal's Service, U.S. Courthouse Annex, 200 N. Travis Street, Mezzanine Level, Sherman, Texas, no later than 2:00 p.m. on November 3, 2022. Signed by District Judge Amos L. Mazzant, III on 10/24/2022. (mmc)

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United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

v.

TRENDON T. SHAVERS,
Defendant.

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Civil Action No. 4:13-cv-00416
Judge Mazzant

MEMORANDUM OPINION AND ORDER
On June 30, 2022, the Securities and Exchange Commission filed its Status Report and
Motion to Reinstate Contempt Proceedings Against Defendant Trendon Shavers (Dkt. #107). On
September 15, 2022, the Court ordered Defendant Trendon T. Shavers to show cause at a hearing
why he should not be held in civil contempt for violating multiple court orders in this case
(Dkt. #109). Defendant failed to appear at the hearing, which was held on September 23, 2022.
Having considered the evidence and the record in this case, the Court finds Defendant in
civil contempt.
BACKGROUND
From February 2011 to August 2012, Defendant Trendon T. Shavers (“Shavers”) operated
an online investment scheme called Bitcoin Savings and Trust (“BTCST”) where he would solicit,
and pay all purported investments, in the digital currency Bitcoin. But, as it turns out, BTCST was
merely a vehicle for Shavers to operate his own Ponzi scheme. Shavers falsely promised BTCST
investors that he would make them significant returns by trading Bitcoin against the U.S. Dollar.
In reality though, Shavers used any new investments to pay outstanding BTCST investments as
purported “returns,” or simply diverted new investments for his own personal use.

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After scamming a series of investors, the Securities and Exchange Commission (“SEC”)
brought a civil action against Shavers and BTCST for conducting fraudulent offers and sales of
securities. On September 18, 2014, the Court found that Shavers and BTCST violated Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; Section
17(a) of the Securities Act of 1933; and Sections 5(a) and 5(c) of the Securities Act of 1933
(Dkt. #88). In its Amended Final Judgement, the Court ordered that Shavers and BTCST were
permanently enjoined from committing any future violations under the previously mentioned laws
(Dkt. #90). Furthermore, the Court ordered that Shavers and BTCST were liable for disgorgement
and prejudgment interest thereon totaling $40,404,667 (Dkt. #90).
Recently, the SEC has tried to enforce the $40,404,667 disgorgement obligation
(“Disgorgement Obligation”) against Shavers. But it has been an arduous task. On September 17,
2021, the SEC filed an application with the Court to order Shavers to show cause why he should
not be held in civil contempt for failing to pay the Disgorgement Obligation (Dkt. #94).
Additionally, the SEC moved the Court to compel Shavers to produce a series of financial
documents to determine Shavers’s ability to pay the Disgorgement Obligation (Dkt. #97).
The Court held a show cause hearing on January 7, 2022, where Shavers and his wife
testified. During the hearing, Shavers testified that he understood that he owed over $40 million to
the SEC in disgorgement and that he had not paid anything towards that judgment (Dkt. #101 at
p. 4). Additionally, Shavers testified that he was currently earning an estimated income of around
$4,000 per month (Dkt. #101 at p. 6). Following the show cause hearing, the Court issued an order
on January 13, 2022 (“January 13 order”) that required Shavers to (1) produce all documents
sought in the SEC’s document request; (2) respond to the SEC’s request for sworn financial
statements and supporting documents in the form provided by the SEC; and (3) make six monthly

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payments of $400 towards the Disgorgement Obligation (Dkt. #100). However, the Court held its
determination of contempt in abeyance until Shavers violated the terms of the order and the SEC
moved for an entry of a contempt order (Dkt. #100).
Thereafter, the SEC moved for an entry of contempt because Shavers failed to comply with
the January 13 order (Dkt. #102). Specifically, Shavers did not respond to the SEC’s request for
sworn financial statements and did not provide all of the documents that the SEC requested
(Dkt. #102, Exhibit 1 ¶¶ 5–6). The SEC also later informed the Court that Shavers failed to pay
two of the monthly payments from the January 13 order (Dkt. #104, Exhibit 1 at pp. 1–2). But,
upon the SEC’s request, the Court ultimately held its contempt finding in abeyance because the
SEC and Shavers agreed to a series of terms, including: (1) Shavers would cure the payment
delinquency by paying the SEC $800 by May 13, 2022; (2) Shavers would continue making
payments of $400 per month going forward with the amount to be reassessed annually (and to
provide documents such as tax returns upon request); (3) Shavers would provide non-notarized
sworn financial statements by email on April 28, 2022; and (4) Shavers would provide notarized
sworn financial statements by no later than June 24, 2022 (Dkt. #105). The SEC was ordered to
provide a status report to the Court by July 1, 2022 (Dkt. #105).
On June 30, 2022, the SEC filed its status report along with a motion to reinstate civil
contempt proceedings against Shavers (Dkt. #107). The SEC reported that Shavers failed to
provide the sworn financial statements it requested, and Shavers did not make any of the
subsequent monthly payments pursuant to the parties’ agreement (Dkt. #107 at pp. 2–3).
Moreover, the SEC informed the Court that Shavers stopped responding to the SEC’s emails
regarding his failure to follow the Court’s orders (Dkt. #107 at p. 3). Given Shavers’s evasiveness

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and noncompliance, the SEC asked the Court to find Shavers in civil contempt and incarcerate him
(Dkt. #107 at p. 5).
In an order on July 13, 2022 (“July 13 order”), the Court required Shavers to respond to
the SEC’s motion by July 27, 2022 (Dkt. #108). The Court also warned Shavers that, if he failed
to respond to the SEC’s motion, then it “may grant the SEC’s motion and order appropriate
sanctions without further notice being given” (Dkt. #108 at p. 1). Shavers did not respond to the
SEC’s motion. Subsequently, the Court ordered Shavers to appear at a hearing on September 23,
2022 (“Show Cause Order”), and show cause why he should not be held in civil contempt for
violating the Amended Final Judgement, the January 13 order, and the July 13 order (Dkt. #109).
Shavers did not appear at the September 23 hearing.
LEGAL STANDARD
“Courts possess the inherent authority to enforce their own injunctive decrees.”
Travelhost, Inc. v. Blandford, 68 F.3d 958, 961 (5th Cir. 1995) (citing Waffenschmidt v. MacKay,
763 F.2d 711, 716 (5th Cir. 1985), cert. denied, 474 U.S. 1056 (1986)). “A court order binds not
only the parties subject thereto, but also non-parties who act with the enjoined party.” Whitcraft v.
Brown, 570 F.3d 268, 272 (5th Cir. 2009); see NLRB v. Laborers’ Int’l Union of N. Am., AFLCIO, 882 F.2d 949, 954 (5th Cir. 1989); Waffenschmidt, 763 F.2d at 726 (citing Ex Parte Lennon,
166 U.S. 548 (1897)); see also FED. R. CIV. P. 65(d)(2) (stating that every injunction and
restraining order “binds . . . the following who receive actual notice of it by personal service or
otherwise: (A) the parties; (B) the parties’ officers, agents, servants, employees, and attorneys; and
(C) other persons who are in active concert or participations with anyone described in Rule
65(d)(2)(A) or (B).”).

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A court may enforce its orders through civil contempt, which is intended to compel
obedience to a court order. See In re Bradley, 588 F.3d 254, 263 (5th Cir. 2009) (“If the purpose
of the sanction is to punish the contemnor and vindicate the authority of the court, the order is
viewed as criminal. If the purpose of the sanction is to coerce the contemnor into compliance with
a court order, or to compensate another party for the contemnor’s violation, the order is considered
purely civil.”). “A party commits contempt when he violates a definite and specific order of the
court requiring him to perform or refrain from performing a particular act or acts with knowledge
of the court's order.” SEC v. First Fin. Grp. of Tex., Inc., 659 F.2d 660, 669 (5th Cir. 1981).
In a civil contempt proceeding, the movant bears the burden of establishing the elements
of contempt by clear and convincing evidence. SEC v. Res. Dev. Int’l LLC, 217 Fed. Appx. 296,
298 (5th Cir. 2007) (citing Petroleos Mexicanos v. Crawford Enter., Inc., 826 F.2d 392, 401 (5th
Cir. 1987)). The elements of contempt the movant must prove by clear and convincing evidence
are: (1) a court order is or was in effect; (2) the order requires certain conduct; and (3) the opposing
party fails to comply with the court order. Am. Airlines, Inc. v. Allied Pilots Ass’n, 228 F.3d 574,
581 (5th Cir. 2000); Martin v. Trinity Indus., Inc., 959 F.2d 45, 47 (5th Cir. 1992). “The
contemptuous action need not be willful so long as the contemnor actually failed to comply with
the court’s order.” Am. Airlines, Inc., 228 F.3d at 581; see N.L.R.B. v. Trailways, Inc., 729 F.2d
1013, 1017 (5th Cir. 1984).
“Upon a finding of civil contempt, the [c]ourt has broad discretion to impose judicial
sanctions that would coerce compliance with its orders and compensate the moving party for any
losses sustained.” Mary Kay Inc. v. Designs by Deanna, Inc., 2013 WL 6246486, at *4 (N.D. Tex.
2013) (citing Am. Airlines, Inc., 228 F.3d at 585). “The paradigmatic, coercive, civil contempt
sanction . . . involves confining a contemnor indefinitely until he complies with an affirmative

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command . . . .” Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 828 (1994)
(citing Gompers v. Buck’s Stove & Range Co., 221 U.S. 418, 442 (1911)). Under these
circumstances, the contemnor “is able to purge the contempt and obtain his release by committing
an affirmative act, and thus carries the keys of his prison in his own pocket.” Id. (cleaned up). To
determine the appropriate sanction for civil contempt, the court considers: “(1) the harm from
noncompliance; (2) the probable effectiveness of the sanction; (3) the financial resources of the
contemnor and the burden the sanctions may impose; and (4) the willfulness of the contemnor in
disregarding the court’s order.” Lamar Fin. Corp. v. Adams, 918 F.2d 564, 567 (5th Cir. 1990)
(citations omitted).
ANALYSIS
As the party moving to hold Shavers in civil contempt, the SEC has the burden to
demonstrate, by clear and convincing evidence, that (1) a court order was in effect; (2) the order
required certain conduct; and (3) the opposing party failed to comply with the court order. See Am.
Airlines, Inc., 228 F.3d at 581. The SEC has satisfied its burden.
Multiple court orders were in effect pertaining to Shavers, including (1) the Amended Final
Judgement (Dkt. #90), (2) the Court’s January 13 order (Dkt. #100), (3) the Court’s July 13 order
(Dkt. #108), and (4) the Show Cause Order (Dkt. #109). Moreover, each of these orders required
specific conduct. The Amended Final Judgement ordered Shavers to pay over $40,000,000 in
disgorgement to the SEC (Dkt. #90). The January 13 order required Shavers to, among other
things, make $400 monthly payments to the SEC and respond to the SEC’s request for sworn
financial statements (Dkt. #100). The Court’s July 13 order required Shavers to file a response to
the SEC’s motion to reinstate contempt proceedings, and the Show Cause Order required Shavers

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to appear before the Court and explain why he should not be held in civil contempt (Dkt. #108;
Dkt. #109).
The SEC has also shown that Shavers failed to comply with these orders. During the
January show cause hearing, Shavers testified that he understood that he owed the SEC over $40
million in disgorgement, and that he had not paid anything towards that amount (Dkt. #101 at p.
4). Shavers also testified that he made around $4,000 a month—showing he had the financial
ability to pay at least some of the disgorgement award (Dkt. #101 at p. 6). Therefore, the SEC
clearly demonstrated that Shavers violated the Amended Final Judgement because he willfully
chose not to pay any of the Disgorgement Obligation. 1 S.E.C. v. Connectajet.com, Inc., No. 3:09CV-1742-B, 2015 WL 6437697, at *2 (N.D. Tex. Oct. 16, 2015) (finding defendant in contempt
for failing to pay any of the disgorgement obligation). Even after the January show cause hearing,
Shavers has apparently made little attempt to satisfy the Disgorgement Obligation and has missed
several scheduled payments to the SEC. The Court sees this as a willful choice to not rectify his
past contempt and shows Shavers is still in contempt for failing to meet his Disgorgement
Obligation. Similarly, Shavers violated the Court’s January 13 order. Specifically, he did not make
two of the $400 monthly payments he was ordered to pay, and he did not respond to the SEC’s
request for sworn financial statements. On top of all of this, Shavers failed to file a response to the
SEC’s motion to reinstate contempt proceedings and did not appear at the September show cause

Although Shavers and the SEC do not address the issue, the Court points out that the failure to pay a disgorgement
obligation is punishable by civil contempt. See S.E.C. v. Connectajet.com, Inc., No. 3:09-CV-1742-B, 2015 WL
6437697, at *2 (N.D. Tex. Oct. 16, 2015). While Rule 69 of the Federal Rules of Civil Procedure provides that the
Court should enforce a money judgement by writ of execution, the Fifth Circuit views a disgorgement obligation as
“more akin to an injunction in the public interest” and “not a mere money judgement or debt.” S.E.C. v. Huffman, 996
F.2d, 802–03 (5th Cir. 1993) (internal quotation marks omitted). Therefore, district courts within the Fifth Circuit
permit disgorgement obligations to be enforced through civil contempt sanctions under Rule 70. See, e.g.,
Connectajet.com, Inc., 2015 WL 6437697, at *2; see also FED. R. CIV. P. 70.
1

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hearing—two more separate grounds for being found in contempt of court. In sum, the SEC has
adequately demonstrated Shavers’s noncompliance with the Court’s orders on multiple occasions.
Having found Shavers in civil contempt, the Court must consider the appropriate sanction.
Four factors guide this inquiry: “(1) the harm from noncompliance; (2) the probable effectiveness
of the sanction; (3) the financial resources of the contemnor and the burden the sanctions may
impose; and (4) the willfulness of the contemnor in disregarding the court’s order.” Lamar Fin.
Corp., 918 F.2d at 567. Applying the factors here, the Court finds imprisonment is the most
appropriate sanction for Shavers’s conduct.
In the SEC’s case, the harm from noncompliance is high; it is currently seeking to enforce
a disgorgement order for over $40,000,000 that Shavers refuses to pay. Imprisonment is also a
highly effective sanction because Shavers has consistently shown he is unwilling to obey the
Court’s orders. Additionally, Shavers refuses to cooperate with the SEC—exhibited by his failure
to honor the agreements between the two parties and even cutting off communication with the SEC
altogether. In that vein, imprisonment might be the only effective sanction in this case considering
Shavers’s repeated noncompliance and evasiveness. Financial sanctions would be ineffective for
similar reasons. Shavers already faces a hefty financial burden in the Disgorgement Obligation,
and he has barely paid anything towards that obligation. So, adding further financial sanctions
would not be particularly helpful. Even when the Court ordered Shavers to pay a heavily reduced
sum, like in the Court’s January 13 order requiring him to pay $400 per month, Shavers did not
follow through and make all of the required payments. This behavior indicates that financial
sanctions will accomplish nothing. Finally, Shavers has willfully disregarded multiple court orders
in this case as outlined above—culminating in his recent nonappearance at the show cause hearing.

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Shavers’s flagrant disregard for the Court’s orders on multiple occasions leads to only one
conclusion: Shavers will only comply with the Court’s orders if he is incarcerated.
The Court is mindful of the fact that imprisonment is an extreme civil contempt remedy.
See Bagwell, 512 U.S. at 828. But it sees no other way to coerce Shavers to comply with the
Court’s orders. Moreover, it bears emphasizing that Shavers holds the “keys of his prison in his
own pocket.” See id. To the extent he demonstrates compliance with the Court’s orders, or shows
he cannot comply with the orders, Shavers will be released.
CONCLUSION
It is therefore ORDERED that Defendant Trendon T. Shavers is hereby in CIVIL
CONTEMPT OF THIS COURT for violating (1) the Amended Final Judgement (Dkt. #90),
(2) the January 13 order (Dkt. #100), (3) the July 13 order (Dkt. #108), and (4) the Show Cause
Order (Dkt. #109).
It is further ORDERED that Shavers shall be imprisoned for civil contempt. Shavers shall
turn himself into the U.S. Marshal’s Service, U.S. Courthouse Annex, 200 N. Travis Street,
Mezzanine Level, Sherman, Texas, no later than 2:00 p.m. on November 3, 2022. If Shavers fails
to appear by the required time, the Court will issue a warrant for his arrest. Shavers shall remain
in custody until he complies with the Court’s orders, which shall be done by completing the
following:
(1) Shavers shall produce the sworn financial statements that the SEC requested. Once
Shavers has demonstrated that he has complied with this requirement, or shown that he cannot,
Shavers will purge himself of his contempt for failing to provide sworn financial documents to the
SEC pursuant to the Court’s January 13 order (Dkt. #100);

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(2) Shavers shall pay $400 to the SEC by no later than ten (10) days after entry of this
Order, which will go towards his Disgorgement Obligation. Shavers shall pay the SEC $400 on
the 5th day of every month thereafter until (i) his Disgorgement Obligation is paid in full, or (ii)
the Court finds on Shavers’s or the SEC’s motion that he has a complete inability to pay the
Disgorgement Obligation. Shavers shall make payments: (i) from a bank account via Pay.gov
through the SEC website at https://www.sec.gov/paymentoptions; or (ii) by certified check, bank
cashier’s check, or United States postal money order payable to the Securities and Exchange
Commission, which shall be delivered or mailed to Enterprise Services Center, Accounts
Receivable Branch, 6500 South MacArthur Boulevard, Oklahoma City, OK 73169, and shall be
accompanied by a letter identifying the case title, civil action number, and name of this Court;
naming Trendon Shavers as a defendant in this action; and specifying that payment is made
pursuant to the Amended Final Judgment. Shavers shall file proof of each payment on ECF.
It is further ORDERED that that SEC and Shavers may agree to adjust the amount to be
paid in the subsequent monthly payments without further order of the Court.
It is further ORDERED that Shavers’s incarceration will be suspended if Shavers provides
the sworn financial statements to the SEC and makes his first $400 payment to the SEC by no later

.

than ten (10) days from the entry of this Order. However, if Shavers fails to make the subsequent
monthly payments to the SEC, the SEC shall notify the Court. Upon receiving any notice, the
Court will issue a warrant for Shavers’s arrest and reinstate his incarceration.
IT IS SO ORDERED.

SIGNED this 24th day of October, 2022.

___________________________________
AMOS L. MAZZANT
UNITED 10
STATES DISTRICT JUDGE