Securities and Exchange Commission v. Bryant et al
MEMORANDUM OPINION AND ORDER re 44 Ex Parte Document, filed by Jennifer Ecklund, 56 Emergency MOTION for Reconsideration of Ex Parte TRO, Preliminary Injunction, Asset Freeze, and Receivership Orders filed by Wammel Group, LLC, A rthur F Wammel. Receivers Motion for Preliminary Injunction(Dkt. #44) is hereby GRANTED. Arthur F. Wammel and Wammel Group, LLCs Motion for Reconsideration (Dkt. #56) is hereby DENIED. It is further ORDERED that unless terminated earlier, this preliminary injunction shall expire upon the issuance of a final decision by the Court in this case. Signed by Judge Amos L. Mazzant, III on 8/15/17. (cm, )
United States District Court
EASTERN DISTRICT OF TEXAS
SECURITIES AND EXCHANGE
THURMAN P BRYANT, III; BRYANT
UNITED CAPITAL FUNDING, INC.
ARTHUR F. WAMMEL; WAMMEL
GROUP, LLC; THURMAN P. BRYANT,
JR.; CARLOS GOODSPEED a/k/a SEAN
PHILLIPS d/b/a TOP AGENT
ENTERTAINMENT d/b/a MR. TOP
Civil Action No. 4:17-CV-00336
MEMORANDUM OPINION AND ORDER
Pending before the Court are the Receiver’s Motion for Preliminary Injunction (Dkt. #44)
and Arthur F. Wammel and Wammel Group, LLC’s Motion for Reconsideration (Dkt. #56).
After reviewing the relevant pleadings, motions, and evidence presented at the hearing, the Court
finds the preliminary injunction should be granted and the motion for reconsideration should be
Thurman P. Bryant, III (“Bryant”) is the President and CEO of Bryant United Capital
Funding, Inc. (“Bryant Capital”) (collectively, “Defendants”). Bryant Capital offered investors
an investment opportunity in which Defendants promised that investors’ money would be placed
in a “secured escrow account” and would earn annual returns of 30% (or 2.5% per month). As
part of the investment scheme, Bryant Capital partnered with Wammel Group, LLC (“Wammel
Group”), which in turn invested Bryant Capital funds in a number of investments. Wammel
Group is wholly owned and operated by Arthur F. Wammel (“Wammel”) (collectively,
“Wammel Parties”). Each month, Wammel Group would distribute funds back to Bryant Capital
as returns.1 Bryant and Wammel agreed that they would share equally in any returns greater than
the 30% annual rate. Bryant expected Wammel to return greater than 30% on a regular basis,
otherwise Bryant would not make a profit.
From June 2011 through April 2017, Bryant Capital received approximately
$22.7 million from approximately 100 investors. Of that money, Bryant Capital transferred more
than $16.2 million to Wammel Group as principal for investments. At the hearing, Bryant
testified that he did not know how Wammel was investing the funds, but he did understand that
the funds would be in a “hedge” for the benefit of the group. Wammel Group held a Wells Fargo
account in which it commingled funds obtained from Bryant Capital investors with funds
obtained from Wammel Group investors. Wammel Group then placed these funds into at least
two investment accounts: OptionsXpress and TD Ameritrade. Each month, Wammel Group
withdrew funds from the investment accounts, placed them in the Wells Fargo account, and then
transferred them to Bryant Capital.
Investments made by Wammel Group struggled to earn the required 2.5% monthly
returns. Based on the agreement with Bryant Capital, Wammel Group should have earned
$11.8 million in returns for Bryan Capital from 2011 to 2017. Wammel Group distributed to
Numerous transfers between Defendants and Wammel Group actually appear as Bryant United Holdings, Inc.
(“Bryant United”). After reviewing the numerous account and activity statements for Bryant United, Bryant Capital,
and Wammel Group, the Receiver’s retained forensic accountant, Brandi Kleinman, determined that Bryant United
and Bryant Capital were essentially the same entity. Without deciding whether these entities are alter egos of each
other, it is sufficient for the Court to look past any distinction. The current proceeding is not against Defendants or
Bryant United and the Wammel Parties have not disputed any difference. Further, any distinction does not affect the
Bryant Capital $15.9 million purportedly as returns. Even if Wammel Group made the minimum
return over that period, it should still hold $12.2 million in principal for Bryant Capital.
However, on April 30, 2017, Wammel Group had total account values across all of its accounts
of approximately $1 million. Since then, Wammel Group OptionsXpress account lost
approximately $200,000 and was closed by OptionsXpress.
Despite clear deficiencies in returns, Wammel Group distributed approximately 3%
monthly returns and significant profits for Wammel and Bryant. To do this, Wammel Group used
funds from other sources. While Wammel Group did produce account statements with divisions
of assets held in the account, the Receiver’s forensic accountant, Brandi Kleinman, testified that
Bryant Capital funds were in fact commingled with funds from Wammel Group investors.
Because Wammel Group was not earning enough to make its payouts, Wammel falsified
documents that he sent to Bryant Capital (SEC Exhibit 3)2 and to investors to appear as if
Wammel Group’s investments were successful. Wammel represented to one investor that
Wammel Group accounts had $41 million more in assets than it did (Compare SEC
Despite operating at a loss, Wammel Group distributed large incomes to Wammel and to
Bryant, individually. Combined, Wammel and Bryant profited by approximately $10 million.
Wammel personally withdrew $5.5 million to fund personal expenses, including a house for
$339,957.94 (R. Exhibits 21 & 22).
On May 15, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint
against Bryant and Bryant Capital alleging securities fraud in connection with a series of
interrelated Ponzi schemes operated by Bryant and the Wammel Parties (Dkt. #1). On May 15,
2017, the Court entered an order appointing a receiver over Bryant and Bryant Capital
At the August 2, 2017 hearing, the Court admitted several exhibits into evidence for the purpose of this hearing.
(“Receivership Order”). The Receivership Order gave the Receiver exclusive jurisdiction to
marshal, conserve, hold, and operate all of Defendants’ assets. The Receivership Order requires:
All banks, brokerage firms, financial institutions, and other persons or
entities which have possession, custody, or control of any assets or funds held by,
in the name of, or for the benefit of, directly or indirectly, an[y] of the
Receivership Defendants that receive actual notice of this Order . . . shall:
A. Not liquidate, transfer, sell, convey, or otherwise transfer any assets
securities, funds, or accounts in the name of or for the benefit of the
Receivership Defendants except upon instructions from the Receiver.
(Dkt. #17 at ¶ 16). From December 2016 to June 2017, Wammel Group’s OptionsXpress account
declined in value by more than $7 million.
On July 19, 2017, the Receiver filed its Ex Parte Motion to Expand the Receivership and
Asset Freeze Against the Wammel Defendants, for Temporary Restraining Order, and for
Preliminary Injunction (Dkt. #44; Dkt. #45). On the same day, the Court granted Receiver’s
motion and entered an Amended Order Appointing Receiver, which added Wammel, Wammel
Group, and Wammel Group Holdings Partnership3 as Receivership Defendants (Dkt. #48). Also
on July 19, 2017, the Court entered an emergency temporary restraining order restraining the
Wammel Parties from interfering with the Receivership Order, and setting a hearing for the
matter on August 2, 2017 (Dkt. #49) (the “TRO”).
On July 25, 2017, the Wammel Parties filed an Emergency Motion and Brief for
Reconsideration of Ex Parte TRO, Preliminary Injunction, Asset Freeze, and Receivership
Orders (Dkt. #56). On August 1, 2017, the Receiver filed a response to the Wammel Parties’
Wammel Parties point out in their response that Wammel Group Holdings Partnership (“Wammel Partnership”)
may not exist, and even if it does exist, it has not been sued or appeared in any pleading in this case. At the hearing,
the Wammel Parties demonstrated that the partnership agreement was never signed. However, Bryant testified in
terms of the Wammel Partnership as the agreement between Bryant Capital and Wammel Group, and Wammel
asserted his Fifth Amendment right to whether he was a partner in the Wammel Partnership. The Court finds
sufficient evidence to support the orders against Wammel Partnership.
motion (Dkt. #73). On August 1, 2017, the SEC filed a response to the Wammel Parties’ motion
On August 2, 2017, the Court held a hearing on the TRO and Wammel Parties’ motion
for reconsideration. Wammel was called to testify at the hearing, but exercised his Fifth
Amendment rights to every substantive question that was asked.4 After the hearing, the Court
found good cause to extend the TRO an additional 14 days, so that the Court could write an
opinion regarding the preliminary injunction (Dkt. #75). This memorandum opinion and order
addresses the preliminary injunction and Wammel Parties’ motion for reconsideration.
A party seeking a preliminary injunction must establish the following elements: (1) a
substantial likelihood of success on the merits; (2) a substantial threat plaintiffs will suffer
irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any
damage the injunction might cause the defendant; and (4) that the injunction will not disserve the
public interest. Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008). “A preliminary
injunction is an extraordinary remedy and should only be granted if the plaintiff [has] clearly
carried the burden of persuasion on all four requirements.” Id. Nevertheless, a movant “is not
required to prove its case in full at a preliminary injunction hearing.” Fed. Sav. & Loan Ins.
Corp. v. Dixon, 835 F.2d 554, 558 (5th Cir. 1985) (quoting Univ. of Tex. v. Comenisch, 451 U.S.
390, 395 (1981)). The decision whether to grant a preliminary injunction lies within the sound
discretion of the district court. Weinberger v. Romero-Barcelo, 456 U.S. 305, 320 (1982).
A district court has broad authority to enforce its orders and to protect assets in a
receivership. SEC v. Stanford Int’l Bank Ltd., 424 F. App’x 338, 340 (5th Cir. 2011) (citing
Bryant was also called to testify. However, he asserted his Fifth Amendment rights to only a few questions.
Schauss v. Metals Depository Corp., 757 F.2d 649, 654 (5th Cir. 1985)). “Such orders can serve
as an important tool permitting a district court to prevent dissipation of property or assets . . . .”
Schauss, 757 F.2d at 654 (citing W. Gulf Mar. Assoc. v. ILA Deep Sea Local 24, 751 F.2d 721,
729 (5th Cir. 1985)). Finally, these orders may be effective against non-parties or parties joined
only as relief defendants. Janvey v. Adams, 588 F.3d 831, 834 (5th Cir. 2009); Schauss, 757 F.2d
I. Likelihood of Success on the Merits
To prevail on its motion for preliminary injunction, the Receiver must demonstrate a
substantial likelihood of success on the merits. This requires the Receiver to present a prima
facie case. Daniels Health Scis., LLC v. Vascular Health Scis., 710 F.3d 579, 582 (5th Cir. 2013)
(citing Janvey, 647 F.3d at 595–96). A prima facie case does not mean the Receiver must prove
it is entitled to summary judgment. Byrum v. Landreth, 566 F.3d 442, 446 (5th Cir. 2009). The
Receiver has demonstrated a substantial likelihood of success on all of its claims.
The Receiver seeks a preliminary injunction against the Wammel Parties, preventing the
Wammel Parties from further violating the Receivership Order. The Receiver bases its motion on
fraudulent transfer, conversion, conspiracy, and breach of fiduciary duty causes of action. To
prevail on its application for preliminary injunction, the Receiver need only prevail on one of its
theories. Ferguson v. Ashcroft, 248 F. Supp. 2d 547, 556 (M.D. La. 2003); Oxford House, Inc. v.
Township of Cherry Hill, 799 F. Supp. 450, 463 (D.N.J. 1992).
First, the Receiver asserts fraudulent transfer as a basis for an injunction. The Receiver
argues that the Wammel Parties are in receipt of funds that were given by Defendants with actual
The Wammel Parties do not dispute that they are properly before the Court as relief defendants. Therefore, the
Court need not analyze their proper joinder. Nevertheless, the Court finds that the Wammel Parties are proper relief
defendants, which the Court can grant relief. Adams, 588 F.3d at 834 (holding that a party is properly joined as a
relief defendant when the party is in receipt of ill-gotten gains for which it does not have a legitimate claim).
intent to hinder, delay, or defraud Defendants’ investors, or that were given without the Wammel
Parties providing reasonably equivalent value. The Wammel Parties do not respond to this
argument. The Court finds that the Receiver has stated a sufficient likelihood of success to
warrant an injunction.
The Court must first determine the Receiver’s standing to assert a fraudulent transfer
claim. The Receiver has standing to bring any claims of the receivership entities—Bryant and
Bryant Capital—against third-party recipients of the entities’ assets that have been fraudulently
transferred by the principal of the Ponzi scheme. Janvey v. Democratic Senatorial Campaign
Comm., Inc., 712 F.3d 185, 191 (5th Cir. 2013). Here, the Receiver seeks to void transfers that
the Wammel Parties received from Bryant Capital that have diminished the value of the
Receivership estate. The Receiver has standing to bring such a claim.
The Texas Uniform Fraudulent Transfer Act (“TUFTA”) provides the substantive law
relevant here. Janvey, 647 F.3d at 596. Under TUFTA, the Receiver is entitled to recover funds
from the Wammel Parties if it shows that Defendants transferred funds to the Wammel Parties
(a) with actual intent to hinder, delay, or defraud Defendants’ investors, or (b) without receiving
a reasonably equivalent value in exchange for the transfer or obligation. Tex. Bus. & Comm.
Code Ann. § 24.005(a). The Receiver has proved a likelihood of success under either theory. The
Court will address each in turn.
The Receiver has proved actual intent to defraud. “In this circuit, proving that [a
transferor] operated as a Ponzi scheme establishes the fraudulent intent behind the transfers it
made.” Janvey, 647 F.3d at 598 (citing SEC v. Res. Dev. Int’l LLC, 487 F.3d 295, 301 (5th Cir.
2007)). A Ponzi scheme is “a fraudulent investment scheme in which money contributed by later
investors generates artificially high dividends or returns for the original investors, whose
example attracts even larger investments.” Ponzi Scheme, Black’s Law Dictionary (10th ed.
2014); Alguire, 647 F.3d at 597. The Receiver alleges that Defendants and the Wammel Parties
operated a series of interlocking Ponzi schemes, using the investors in one Ponzi scheme to pay
off other Ponzi scheme investors. Defendants promised investors guaranteed high returns of 30%
annually on their investments. To follow through on these promises, Defendants transferred
funds to the Wammel Parties, who then commingled Defendants’ funds with Wammel Group
investors’ funds and invested in high-risk options trading. Wammel Group trading receipts from
2011 through 2017 show returns of only $5.9 million—well short of the sum required to pay
Bryant Capital investors the 30% returns that they were promised. Nevertheless, Wammel Group
paid $15.8 million to Bryant Capital between 2011 and 2017 as purported returns on
investments. The funds returned to Bryant Capital were comprised of (1) the $5.9 million in
receipts from Wammel Group’s options trading; (2) funds from Bryant Capital’s investors; and
(3) funds from Wammel Group’s investors.
Wammel also failed to maintain proper accounting. Wammel commingled funds to make
more money available to pay investors their promised returns. Further, Wammel produced
fraudulent documents to conceal the fact that Wammel Group and Bryant Capital were losing
money. The Court finds this is sufficient evidence to establish a Ponzi scheme. Thus, the
Receiver has proved a prima facie case of intent to defraud under TUFTA. The Wammel Parties
do not assert that they qualify for TUFTA’s affirmative defense. Therefore, the Receiver has
sufficiently proved a likelihood of success on the merits of its fraudulent transfer claim.
Under the reasonably equivalent value theory, the Receiver must show that Defendants
(a) were engaged in a business or transaction for which the Defendants’ remaining assets were
unreasonably small in relation to the business or transaction, or (b) intended to incur, or
reasonably should have believed that Defendants would incur, debts beyond their ability to pay
as they became due. Tex. Bus. & Comm. Code § 24.005(a). The Receiver has proved that the
Wammel Parties received Defendants’ funds with the knowledge that Defendants would incur
debts beyond their ability to pay investors as the payments became due. As the evidence above
shows, the Wammel Parties had no reason to believe that Defendants could produce 30% annual
returns on investments. Therefore, the Wammel Parties obscured accounting records,
commingled funds, and falsified documents to conceal Defendants’ shortcomings. Therefore, the
Receiver has shown a likelihood of success of prevailing on this theory as well.
The Receiver also asserts conversion, conspiracy, and breach of fiduciary duty as grounds
for an injunction. For the same reasons as stated above, the Court finds that the Receiver has
established a likelihood of success on these claims.
Conversion under Texas law is “[t]he unauthorized and wrongful assumption and
exercise of dominion and control over the personal property of another, to the exclusion of or
inconsistent with the owner’s rights.” Arthur W. Tifford, PA v. Tandem Energy Corp., 562 F.3d
699, 705 (5th Cir. 2009) (quoting Waisath v. Lack’s Stores, Inc., 474 F.2d 444, 447 (Tex. 1971)).
Wammel converted funds when he took $5.5 million as profits, despite failing to earn the
minimum returns. Wammel had a right to half of the returns that were greater than 30% annually.
He did not obtain returns greater than 30%. Therefore, he had no right to the profits that he took.
To prove a cause of action for civil conspiracy under Texas law, a plaintiff must establish
the following elements: “(1) two or more persons; (2) an object to be accomplished; (3) a
meeting of minds on the object or course of action; (4) one or more unlawful, overt acts; and
(5) damages as the proximate result.” Apani Sw., Inc. v. Coca-Cola Enters., Inc., 300 F.3d 620,
635 (5th Cir. 2002) (quoting Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983)). The
Wammel Parties conspired to siphon assets from Bryant Capital contributions. The Wammel
Parties were not permitted to take any profits from the Bryant Capital funds unless the returns
were greater than 30% annually. As the evidence shows, the Wammel Parties were not
successful in earning more than 30% annual returns. Therefore, they did not have the right to
take any profits from Bryant Capital funds. Nevertheless, Wammel withdrew $5.5 million for
personal expenses. Because of commingling and because Wammel asserted his Fifth
Amendment rights to every question asked of him, the Court cannot determine how much of
Wammel’s profits were properly taken. The Court finds sufficient evidence to support a
likelihood of success that Wammel conspired to convert funds attributable to Bryant Capital.
Finally, to establish a claim for breach of fiduciary duty, the Receiver must show: (1) a
fiduciary relationship between Defendants and the Wammel Parties; (2) the Wammel Parties
breached their fiduciary duties to Defendants; and (3) the Wammel Parties’ breach caused injury
to Defendants. Navigant Consulting, Inc. v. Wilkinson, 508 F.3d 277, 283 (5th Cir. 2007)
(quoting Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App.—Dallas 2006, pet. denied)). A
fiduciary relationship “exists where a special confidence is reposed in another who in equity and
good conscience is bound to act in good faith and with due regard to the interests of the one
reposing confidence.” Tex. Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507 (Tex. 1980). The
Wammel Parties owed a fiduciary duty to Bryant Capital to invest funds in a reasonable manner
and to distribute returns according to the investors’ rights. The Wammel Parties breached this
duty by retaining funds as profits despite not earning the agreed-to amount. As a result, Bryant
Capital has lost millions of dollars. The Court finds a likelihood of success on this claim as well.
II. Likelihood of Irreparable Harm
The Receiver must demonstrate it is “likely to suffer irreparable harm in the absence of
preliminary relief.” Winter v. Nat. Res. Def. Council, 555 U.S. 7, 20 (2008). “[H]arm is
irreparable where there is no adequate remedy at law, such as monetary damages.” Janvey,
647 F.3d at 600. A district court may issue a preliminary injunction to protect a remedy,
including a damages remedy, when the freezing of assets is limited to the property in dispute or
its direct, traceable proceeds. Id. (citing Productos Carnic, S.A. v. Cent. Am. Beer & Seafood
Trading Co., 621 F.2d 683, 686–87 (5th Cir. 1980)). An injunction is appropriate only if the
anticipated injury is imminent and not speculative. Winter, 555 U.S. at 22.
The Court finds that a preliminary injunction is necessary to prevent further irreparable
injury to Defendants. The Receiver successfully showed that the threatened harm—dissipation of
assets—would impair the Court’s ability to grant an effective remedy. The Receiver ultimately
seeks to protect the Receivership Estate. If the Wammel Parties dissipate or transfer assets out of
the jurisdiction, the district court would not be able to grant an effective remedy. The Receiver
has shown that the Wammel Parties have dissipated significant assets and have the opportunity to
continue to do so.
Further, the Receiver has produced sufficient evidence to prove commingling of assets
such that segregation between assets used in the Defendants’ scheme and those of Wammel
Parties’ investors cannot be done. Therefore, a preliminary injunction over all of Wammel
Parties’ acts is appropriate to protect against dissipation of Defendants’ assets.
III. Balance of Hardships
When deciding whether to grant an injunction, courts “must balance the competing
claims of injury and must consider the effect on each party of the granting or withholding of the
requested relief.” Winter, 555 U.S. at 24 (citation omitted).
The hardships tip in favor of an injunction. On one side, the Defendants’ investors are
innocent parties who will likely get very little return. If an injunction does not issue, the
Wammel Parties may further dissipate the Receivership assets, rendering essentially useless any
judgment on the merits. On the other hand, the Wammel Parties have profited greatly by
deceiving investors. Balancing the hardships favors an injunction.
IV. The Public Interest
“In exercising their sound discretion, courts of equity should pay particular regard for the
public consequences in employing the extraordinary remedy of injunction.” Winter, 555 U.S.
at 24 (quoting Weinberger, 465 U.S. at 312). This factor overlaps substantially with the balanceof-hardships requirement. Id.
The public interest favors the ability of people to invest without fear of being defrauded.
The Court has entered a Receivership Order to protect the investors who were likely defrauded.
The Wammel Parties have violated the Receivership Order by dissipating assets. The public
interest also favors enforcing judicial orders. Therefore, an injunction preventing the Wammel
Parties from further violating the Receivership Order is in the public interest.
V. The Wammel Parties’ Motion to Reconsider
The Wammel Parties argue that the TRO should be set aside because it violated the
Wammel Parties’ due process rights; because the Receiver misled the Court in its motion; and
because the U.S. Marshals and Receiver executed an unconstitutional search and seizure. The
Wammel Parties’ objections are without merit.
First, the Wammel Parties argue the TRO violated their due process rights because they
had no notice or opportunity to be heard before the Receiver took their property. Further, the
Wammel Parties argue that they did not have notice because they have not been named as
defendants in any action by the SEC and thus do not know what they did wrong. The Receiver
argues that the appointment of a receiver and concomitant taking of property do not violate the
Fourth Amendment. The Court agrees with the Receiver.
The Wammel Parties’ first argument is unfounded. The complaint filed by the SEC stated
substantially similar material facts to this motion (See Dkt. #1). The Wammel Parties have been
involved in the investigation since December 2016 and answered this suit as relief defendants on
June 8, 2017 (Dkt. #29). Although the SEC did not name the Wammel Parties as regular
defendants, the SEC did allege facts showing a relationship between Defendants and the
Wammel Parties. The Wammel Parties cannot now claim, after answering this suit as relief
defendants and being served with a summons and many orders, that they do not have notice of
potential wrongdoing, especially when their acts indicate otherwise.
Further, the cases cited by the Wammel Parties are distinguishable. In United States v.
James Daniel Good Real Property, the immovability of real property destroyed the alleged
exigent circumstances that permitted a governmental taking before a hearing could take place.
510 U.S. 43, 62 (1993). In James Daniel Good Real Property, the government forfeited James
Good’s house and the four-acre parcel on which it was situated because it was involved in his
drug crime. Id. at 47. In an ex parte proceeding, a magistrate judge found that the Government
established probable cause to believe that Good’s property was subject to forfeiture. Id. The
Government then seized the property without notice or a hearing. Id. In analyzing the Mathews
factors, the Supreme Court held that the seizure of real property is not one of the extraordinary
circumstances that justifies ex parte forfeiture because real property is not moveable and thus at
minimal risk for destruction or dissipation. Id. at 62. The Supreme Court went on to state that
“[t]o establish exigent circumstances, the Government must show that less restrictive measures—
i.e., . . . restraining order . . .—would not suffice to protect the Government’s interest in
preventing the sale, destruction, or continued unlawful use of the real property.” Id.
Second, United States v. $8,850 in U.S. Currency dealt with a post-seizure delay.
461 U.S. 555, 562–63 (1983). The aggrieved party conceded that the Government could seize her
property without a prior hearing. Id. at 562.
Finally, in Fuentes v. Shevin, the issue was the constitutionality of a seizure upon bare
assertions that were not reviewed by a neutral decision-maker. 407 U.S. 67, 93 (1972). None of
these cases bears on the seizure here.
Due Process requires “such procedural protections as the particular situation demands.”
Morrissey v. Brewer, 408 U.S. 471, 481 (1972). The Supreme Court in Mathews v. Eldridge
enunciated several factors to consider before depriving a person of property without a hearing:
(1) the private interest that will be affected by the official action; (2) the risk of an erroneous
deprivation of such interest through the procedures used, and probable value, if any, of additional
procedural safeguards; and (3) the Government's interest, including the fiscal and administrative
burdens that the additional or substitute procedures would entail. Mathews v. Eldridge, 424 U.S.
319, 340–48. Additionally, when the Government claims exigent circumstances necessitate
immediate seizure, “the Government must show that less restrictive measures—i.e., . . .
restraining order . . .—would not suffice to protect the Government’s interest in preventing the
sale, destruction, or continued unlawful use of the real property.” James Daniel Good Real
Property, 510 U.S. at 62.
Here, the private interest that will be affected—the Wammel Parties’ business—was
greatly outweighed by other factors. Thus, the TRO was appropriate. The risk of an erroneous
deprivation was small because the TRO would last fourteen days at a maximum before a hearing.
Further, the immediate seizure of the Wammel Parties’ assets was essential to secure an
important governmental interest, that of the Receiver. The Receiver articulated detailed reasons
to believe that prompt action was necessary because the Wammel Parties were closely related to
Defendants and the assets at issue were extremely moveable. To prove the liquidity and danger
of dissipation, the Receiver provided evidence that several million dollars had disappeared in a
short period of time leading up to the ex parte motion. The Receiver provided sufficient evidence
that the Wammel Parties dissipated funds despite the Receivership Order. Thus, a less restrictive
measure would not sufficiently protect the Government’s interest. James Daniel Good Real
Property, 510 U.S. at 62. Finally, the government exercised this power through its agent, the
duly appointed Receiver, and after review by a neutral judge. None of the parties involved in
obtaining the ex parte TRO were interested. Cf. Fuentes, 407 U.S. at 93. Finally, the Wammel
Parties are already parties to this proceeding, even if only as relief defendants, and thus have had
a full opportunity to litigate their rights. SEC v. Cavanagh, 155 F.3d 129, 136–37 (2d Cir. 1998).
Thus, the need for immediate seizure outweighed the general desire for pre-deprivation hearing.
Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 679 (1974) (holding ex parte seizure
was appropriate where pre-deprivation notice and hearing could lead to the removal, destruction,
or concealment of the subject property); see also Mathews, 424 U.S. at 340–48.
Further, the Wammel Parties’ arguments that the Receiver misled the Court are not
First, the Wammel Parties argue that the alleged dissipation occurred before the
Receivership Order was entered and that assets disappeared because of bad luck in the
investment market, not dissipation. Neither argument is persuasive. The purpose of a
receivership is to marshal and protect assets so that they are available to pay disgorgement orders
and civil penalties. SEC v. Brooks, No. Civ.A.3:99–CV–1326–D, 1999 WL 493052, at *2 (N.D.
Tex. July 12, 1999). Therefore, all that matters is that the Wammel Parties possessed
Receivership assets and put them at risk of loss. See Dissipation, Black’s Law Dictionary
(10th ed. 2014) (“The use of an asset for an illegal or inequitable purpose . . . .”). The Wammel
Parties had significant access to Receivership assets and invested those assets in risky investment
schemes, resulting in substantial losses. The Wammel Parties have not offered any evidence that
their access has been restrained. Therefore, the Wammel Parties had significant, continued
access to Receivership assets, and the Wammel Parties have dissipated those assets.
Next, the Wammel Parties argue that the present application was not an emergency
because the SEC knew about the dissipation of assets beginning in December 2016, but has not
added the Wammel Parties as defendants. This is unavailing. The SEC and Receiver are
independent parties with different roles and procedures. In re Sherman, 491 F.3d 948, 963
(9th Cir. 2007). The Receiver provided substantial evidence of commingling of funds and
significant withdrawals by Wammel and Bryant, despite not earning enough income to support
such distributions. The Court finds this to be sufficient to warrant emergency relief to protect the
Next, the Wammel Parties contest the Receiver’s characterization of the disappearance of
Wammel’s computer. The Court did not rely on this fact in coming to the foregoing conclusions.
Therefore, this argument is moot.
Next, the Wammel Parties contest the Receiver’s characterization that Wammel
“refused” to comply with court orders. The Wammel Parties argue that they were not subject to
the original TRO entered in May. They argue that the Receiver, despite serving them with the
TRO and Receivership Order, did not notify the Wammel Parties that they were subject to either
order. The Wammel Parties further argue that the Receiver made no effort to obtain voluntary
compliance before filing this motion. This argument is not convincing.
It is undisputed that the Receiver gave actual notice of the TRO and Receivership Order
to the Wammel Parties. The Wammel Parties answered the complaint as relief defendants. The
Receiver was under no obligation to interpret the order and act as counsel for the Wammel
Parties. The order speaks for itself, the Wammel Parties know their own actions, and a team of
competent attorneys represents the Wammel Parties. After reviewing all of the evidence, the
Wammel Parties had no legitimate reason to believe that the order did not apply to them. Nor did
the Wammel Parties seek clarification on their hyper-technical reading. The Receiver has no
obligation to seek voluntary compliance before filing a motion with the Court. The fact that the
Receiver sought ex parte relief explains why the Receiver did not seek voluntary compliance.
The Court independently reviewed the Receiver’s reasons for emergency ex parte relief and
found them sufficient. Thus, the Receiver’s characterization of the Wammel Parties’ “refusal”
was not misleading, and in any event, harmless.
Finally, the Wammel Parties’ invocation of the ethical rules is baseless. The Wammel
Parties argue that the Receiver did not make full disclosures to the Court when it failed to inform
the Court of prior settlement discussions between the SEC and the Wammel Parties. The
Wammel Parties further argue that the Receiver was not in full candor when it did not tell the
Court that it never sought voluntary compliance and did not interpret the law for the Wammel
As the Court has previously discussed, these arguments are all meritless on their face.
The SEC and Receiver are separate entities with different roles in the proceedings. The Wammel
Parties’ counsel even recognized and tried to use the difference between the SEC and Receiver
as a sword during the hearing.6 The fact that the Wammel Parties agreed with the SEC that there
would be no asset freeze does not prevent the Receiver from seeking the same as it relates to
protection of the Receivership Estate.
Further, the Receiver was not required to disclose the facts that the Wammel Parties now
assert. The disciplinary rule requires the lawyer for the represented party “to make disclosures of
unprivileged material facts known to the lawyer if the lawyer reasonably believes the tribunal
will not reach a just decision unless informed of these facts.” Tex. Disciplinary Rules Prof’l
Conduct R. 3.03, reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G, app. A (West 2005). The
facts asserted by the Wammel Parties are not material because they do not affect the outcome.
For similar reasons, the Receiver had no reason to believe that omission of those facts would
lead to an unjust result. Therefore, the Wammel Parties’ argument is unavailing.
The Court does not take lightly a party’s invocation of the rules of disciplinary conduct.
The Court understands the need for counsel to zealously advocate for his or her client. However,
The Wammel Parties’ counsel objected to the authenticity of a document containing a Wammel “Bates label” by
(1) relying on Wammel’s personal assertion of the Fifth Amendment; and (2) arguing that the document was not
produced in discovery for this proceeding because there has been no discovery in a proceeding between the Receiver
and Wammel Parties. It was only after pointed questions by the Court that the Wammel Parties conceded that they
did produce the document during the SEC’s investigation beginning in December 2016.
this must be done with full introspection. The Texas Rules of Professional Conduct state: “A
lawyer should use the law's procedures only for legitimate purposes and not to harass or
intimidate others. A lawyer should demonstrate respect for the legal system and for those who
serve it, including judges, other lawyers and public officials.” Tex. Disciplinary Rules of Prof’l
Conduct preamble ¶ 4. This should be contemplated before claiming ethical violations.
Finally, the Wammel Parties argue that the U.S. Marshals and Receiver conducted an
invalid search and seizure because the TRO was obtained under knowingly or recklessly false
statements. The Court disagrees. The Court has already explained that it finds no statement made
by the Receiver to be false. The competent and credible evidence produced by the Receiver at
the hearing nearly mirrored what was in the Receiver’s brief. While this does not cure any taint
of the TRO, it is evidence that the arguments and evidence in the briefing were valid. Thus, the
Receiver did not make, and the Court did not rely upon, false statements. United States v. Leon,
468 U.S. 897, 922 (1984). Further, to the extent that the Receiver withheld information or gave
misleading characterizations about the disappearance of Wammel’s computer, material or
otherwise, the Court did not rely on those allegedly misleading statements. Finally, the Wammel
Parties do not identify any alleged fruits of the poisonous tree. The Receiver’s evidence
presented in the hearing was nearly identical to that presented in its brief. None of the documents
or testimony necessarily came from the search and seizure of the Wammel Parties’ property
because the Receiver knew of the facts before any search or seizure of the Wammel Parties’
property. Therefore, even if the TRO were tainted, it does not affect this order.
It is therefore ORDERED that the Receiver’s Motion for Preliminary Injunction
(Dkt. #44) is hereby GRANTED.
It is further ORDERED that Arthur F. Wammel and Wammel Group, LLC’s Motion for
Reconsideration (Dkt. #56) is hereby DENIED.
It is further ORDERED that Arthur F. Wammel; Wammel Group, LLC; and Wammel
Group Holding Partnership, their officers, agents, representatives, employees and successors, and
all other persons in active concert and participation with them, are hereby enjoined from further
violating the Receivership Order (Dkt. #17), and Amended Order Appointing Receiver (Dkt.
. #48), and any order pursuant thereto.
It is further ORDERED that unless terminated earlier, this preliminary injunction shall
expire upon the issuance of a final decision by the Court in this case.
No bond shall be required.
SIGNED this 15th day of August, 2017.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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