Securities and Exchange Commission v. Meta 1 Coin Trust et al
ORDER OF CIVIL CONTEMPT and for issuance of BENCH WARRANTS as to Dunlap and Schmidt. ORDER that Bowdler shall provide proof, in writing, that she has complied with the Court's orders, (see Dkt. #8 at 4-7, 12-16; Dkt. #31 at 4-7, 11-13), by April 24, 2020, at 5:00 p.m. CDT. ORDER that the Meta 1 Defendants may respond to the SEC's motion to supplement its motion for an order to show cause, (Dkt. #38 ), on or before April 27, 2020. Signed by Judge Robert Pitman. (lt)
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SECURITIES AND EXCHANGE
META 1 COIN TRUST, ROBERT P.
DUNLAP, individually and d/b/a Clear
International Trust, NICOLE BOWDLER,
DAVID A. SCHMIDT, PRAMANA CAPITAL, §
INC., and PETER K. SHAMOUN a/k/a
PETER K. SHAMOON,
On April 20, 2020, the Court held a hearing by videoconference and telephone1 after
granting Plaintiff Securities and Exchange Commission’s (the “SEC”) Emergency Motion for Order
to Show Cause Why Defendants Should Not Be Held in Contempt. (Minute Entry, Dkt. 37; Mot.
Show Cause, Dkt. 32). The purpose of the hearing was to allow Defendants Meta 1 Coin Trust,
Robert P. Dunlap, individually and d/b/a Clear International Trust (“Dunlap”), Nicole Bowdler
(“Bowdler”), and David A. Schmidt (“Schmidt”) (collectively, the “Meta 1 Defendants”) an
opportunity to be heard and to show cause for why they should not be held in contempt. None of
the Meta 1 Defendants appeared at the hearing. (Minute Entry, Dkt. 37, at 1).
“While the Court would typically hold this hearing in person, it does so by videoconference in this case in
light of the COVID-19 pandemic.” (Order, Dkt. 33, at 3 n.2 (citing Order Regarding Court Operations under
the Exigent Circumstances Created by the COVID-19 Pandemic (W.D. Tex. filed Mar. 13, 2020),
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After considering the evidence in the record, including Dunlap’s three filings so far in this
case, (Dkt. 18, 27, 35), the SEC’s arguments at the hearing, and the relevant law, the Court finds
each of the Meta 1 Defendants in civil contempt.
This case involves the Meta 1 Defendants’ digital currency, the “Meta 1 Coin.” (Compl.,
Dkt. 1, at 1–2). They solicited investors in an initial coin offering, claiming that the currency is
backed by billions of dollars in fine art and/or gold and guaranteeing massive increases in value.
(Id.). The SEC alleges that the enterprise “is nothing but a vehicle to steal investors’ money.” (Id. at
2). The SEC argues that the Meta 1 Defendants worked with Defendants Pramana Capital, Inc. and
Peter K. Shamoun a/k/a Peter K. Shamoon to funnel money into various accounts. (Id. at 22–24).
The Meta 1 Defendants frequently post on their social media accounts about the currency,
discuss it on regular YouTube broadcasts, and promote it in an email newsletter. (Compl., Dkt. 1, at
8–21). The SEC has previously represented that according to its most recent accounting, the Meta 1
Defendants have obtained over $8 million from investors.
The Meta 1 Defendants have actively resisted the SEC’s prelitigation investigation and its
subsequent communications after filing this case. (See id. at 21). They return documents with the
word “fraudulent” written over them, (see id.), and have filed documents with the Court rejecting its
jurisdiction and claiming the SEC is illegitimate, (see Dkt. 18, 27, 35). The SEC interviewed Dunlap,
but he refused to answer many questions. (Compl., Dkt. 1, at 21–22).
On March 16, 2020, the Court issued a temporary restraining order and several associated
orders prohibiting the Meta 1 Defendants from violating “Section 10(b) of the Exchange Act [15
U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5],” “Section 17(a) of
the Securities Act [15 U.S.C. § 77q(a)],” and “Section 5 of the Securities Act [15 U.S.C. § 77e].” (Dkt.
8 at 3–6). The Court also barred the Meta 1 Defendants from “directly or indirectly (through an
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entity they control or otherwise) participating in the issuance, purchase, offer, or sale of any
securities provided.” (Id. at 7). In other words, they were prohibited from continuing to defraud
current and potential investors in the Meta 1 Coin and accept payments for the Meta 1 Coin. The
Meta 1 Defendants were also instructed to file a sworn accounting of investor funds with the Court
on or before March 26, 2020. (Id. at 14). And the Court ordered the Meta 1 Defendants’ assets
frozen. (Id. at 7–12).
On March 27, 2020, the Court granted SEC’s motion for alternate service by email after the
SEC established its substantial difficulty in effecting personal service. (Order, Dkt. 19). Both the
SEC and the Courtroom Deputy have emailed all hearing-related filings in the case to the Meta 1
On April 13, 2020, the Court held a preliminary injunction hearing by telephone. (Minute
Entry, Dkt. 30). The Meta 1 Defendants did not appear. (Id. at 1). The Court granted a preliminary
injunction the same day, which imposed the same terms as the temporary restraining order, (Dkt. 8).
(Mot. Prelim. Inj., Dkt. 24; Order, Dkt. 31).
In its motion for an order to show cause for why the Meta 1 Defendants should not be held
in contempt, the SEC argues that after receiving notice of the Court’s temporary restraining order
and associated orders, (Dkt. 8), the Meta 1 Defendants “have each disregarded and violated the
Orders by: (1) continuing to violate the antifraud provisions of the federal securities laws; (2)
continuing to participate in the offer and/or sale of securities; and (3) failing to prepare and file a
sworn accounting of investor funds.”2 (Mot. Show Cause, Dkt. 32, at 2). The SEC asks the Court to
find the Meta 1 Defendants in civil contempt and impose “sanctions of a ‘fine or imprisonment, or
both.’” (Id. at 8 (quoting 18 U.S.C. § 401)). In support of its request, the SEC points to evidence
The SEC has previously stated that it “has not sought preliminary injunctive relief against Relief Defendants
Pramana Capital, Inc. and Peter K. Shamoun a/k/a Peter K. Shamoon.” (Mot. PI, Dkt. 24, at 1 n.1).
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already in the record and attaches additional evidence to the effect that the Meta 1 Defendants
continue to market the Meta 1 Coin to their email list and host online seminars. (Id. (citing Dkt. 17,
24); Emails, Pl.’s Ex. A, Dkt. 32-1, at 2–9; Audio Tr., Pl.’s Ex. B, Dkt. 32-2, at 2–9; Meta 1 White
Paper, Dkt. 32-3, at 2–7). In the Meta 1 Defendants’ communications with investors, they explicitly,
repeatedly, and disparagingly refer to this case and the SEC’s attorneys, even accusing them of
perjury. (See, e.g., Mot. Show Cause, Dkt. 32, at 4–5). Their website remains active with full
functionality. (Id. at 5). They have not filed an accounting. (Id.).
On April 20, 2020, after the show cause hearing, the SEC filed a motion to supplement its
motion for an order to show cause. (Dkt. 38).3 It seeks the same civil contempt findings as in its
original motion, but it additionally asks the Court to order the Meta 1 Defendants to “cease and
desist from posting content to YouTube, Facebook, or any social media” and “remove all content
currently posted” that “(1) markets, offers, or attempts to sell the Meta 1 Coin; or (2) that makes
false or misleading statements, including the statement that Meta1 owns $1 billion of art, gold mines
or gold bars, or other assets in amounts sufficient to repay the Meta1 investors.” (Proposed Order,
Dkt. 38-2, at 4). The SEC asserts that “[s]ince the Court issued its TRO, Meta1 has posted at least 31
videos to its YouTube channel, all of which are publicly available worldwide. While the content
varies, all of the videos either market the Meta 1 Coin, offer it for sale, or contain false and/or
misleading statements about the nature of the investment.” (Mot. Suppl., Dkt. 38, at 2). The most
recent video was posted on April 20, 2020, the day of the show cause hearing. (Id.).
The Court will refrain from ruling on this motion until the Meta 1 Defendants have had sufficient time to
respond. See Part IV, infra.
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In the past month, Dunlap has made three filings with the Court, each purporting to speak
for all of the Meta 1 Defendants.4 (Dkt. 18, 27, 35). In each, he asserts immunity from suit and
argues that the Meta 1 Defendants are not subject to the Court’s jurisdiction or the SEC’s
enforcement powers.5 In his latter two filings, Dunlap attached a number of documents containing
unredacted sensitive personal information; the Court sealed both filings sua sponte under Federal Rule
of Civil Procedure 5.2(a). (Order, Dkt. 28; Order, Dkt. 36). His most recent filing, a response to the
Court’s order to show cause, acknowledges having received notice of the April 20, 2020, hearing.
(Dkt. 35 at 1 (“Re: Order 4/16/20 Response”)). Dunlap has also attempted to engage in ex parte
communication by telephone a number of times, referring to the April 20, 2020, hearing and other
materials filed in the case.
II. APPLICABLE LAW
Courts may impose sanctions for civil contempt as exercises of their inherent powers to
protect their proper functioning and ensure “submission to their lawful mandates.” Int’l Union,
United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 831 (1994) (quoting Anderson v. Dunn, 19 U.S. (6
Wheat) 204, 227 (1821)). This “justification for the contempt authority is at its pinnacle . . . where
contumacious conduct threatens a court’s immediate ability to conduct its proceedings.” Id. at 832.
“The violation of an injunction is a contempt against an entire court insofar as it flouts the court’s
While nonlawyer individual defendants may represent themselves in certain circumstances, they may not
represent or assist in the self-representation of their codefendants. See Martin v. City of Alexandria, 198 F.
App’x 344, 346 (5th Cir. 2006) (quoting Iannaccone v. Law, 142 F.3d 553, 558 (2d Cir. 1998)) (“[B]ecause pro se
means to appear for one’s self, a person may not appear on another person’s behalf in the other’s cause.”).
5 Dunlap’s communications with the SEC and the Court thus far “are replete with identifying characteristics
of the sovereign citizen movement” and raise arguments that are “indisputably meritless.” Westfall v. Davis,
No. 7:18-CV-00023-O-BP, 2018 WL 2422058, at *2–3 (N.D. Tex. May 4, 2018), report and recommendation
adopted, No. 7:18-CV-023-O-BP, 2018 WL 2414794 (N.D. Tex. May 29, 2018); see generally United States v.
Weast, 811 F.3d 743, 746 n.5 (5th Cir. 2016) (“The sovereign citizen movement is a loose grouping of
litigants, commentators, and tax protesters who often take the position that they are not subject to state or
federal statutes and proceedings.”); Caesar Kalinowski IV, A Legal Response to the Sovereign Citizen Movement, 80
Mont. L. Rev. 153, 193 (2019) (“Voicing concerns over the federal government’s overreach into citizens’
lives, Sovereign Citizens make the unfortunate mistake of relying on non-binding or irrelevant legal
definitions and misreading judicial opinions to avoid regulation or invoke rights that have no basis in law.”).
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basic authority to preserve order and administer justice.” In re McLean, 794 F.3d 1313, 1319 (11th
Cir. 2015) (citing Young v. United States ex rel. Vuitton et Fils S.A., 481 U.S. 787, 795 (1987)).
Generally, “[j]udicial sanctions in civil contempt proceedings [are] employed for either or
both of two purposes: to coerce the defendant into compliance with the court’s order [or] to
compensate the complainant for losses sustained.” Am. Airlines, Inc. v. Allied Pilots Ass’n, 228 F.3d
574, 585 (5th Cir. 2000). The SEC, as the party seeking a finding of contempt, “bears the burden of
establishing by clear and convincing evidence 1) that a court order was in effect, 2) that the order
required certain conduct by the respondent, and 3) that the respondent failed to comply with the
court’s order.” Martin v. Trinity Indus., Inc., 959 F.2d 45, 47 (5th Cir. 1992). The allegedly
“contemptuous actions need not be willful so long as the contemnor actually failed to comply with
the court’s order.” Am. Airlines, 228 F.3d at 581.
Moreover, failure to attend a civil contempt hearing can be a separate ground for a finding of
civil contempt. See, e.g., In re Shah, 200 F. App’x 349, 350 (5th Cir. 2006) (imposing civil contempt
sanctions is appropriate when defendant fails to appear at hearing); RMC Publications v. Doulos PM
Training, No. CIV A 307-CV-2139-O, 2009 WL 1974286, at *2 (N.D. Tex. July 7, 2009) (same); see
also Quilling for Sardaukar Holdings, IBC v. 3-D Mktg., LLC, No. 3-06-CV-0293-L, 2007 WL 9711514,
at *3 (N.D. Tex. July 18, 2007) (corporate officers who do not appear at show cause hearings in
cases to which their companies are parties are subject to civil contempt sanctions).
Civil contempt proceedings do not require the same procedural safeguards as do criminal
contempt proceedings involving punitive sanctions. “[C]ivil contempt sanctions, or those penalties
designed to compel future compliance with a court order, are considered to be coercive and
avoidable through obedience, and thus may be imposed in an ordinary civil proceeding upon notice
and an opportunity to be heard. Neither a jury trial nor proof beyond a reasonable doubt is
required.” Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 827 (1994); see also Taggart v.
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Lorenzen, 139 S. Ct. 1795, 1801–02 (2019). In particular, “indirect contempts involving discrete,
readily ascertainable acts . . . properly may be adjudicated through civil proceedings since the need
for extensive, impartial factfinding is less pressing.” Bagwell, 512 U.S. at 833.
Upon a finding of civil contempt, the Court may opt to impose sanctions, including
incarceration and fines paid to the Clerk. “The paradigmatic coercive, civil contempt sanction . . .
involves confining a contemnor indefinitely until he complies with an affirmative command.”
Bagwell, 512 U.S. at 828. “[T]he contemnor is able to purge the contempt and obtain his release by
committing an affirmative act”—i.e., by complying with the Court’s orders. Id. The same logic
applies to fines ordered as civil contempt sanctions: “if the contemnor has [a] subsequent
opportunity to reduce or avoid the fine through compliance,” the fine is a permissible sanction for
civil contempt. Id. at 829; see Turner v. Rogers, 564 U.S. 431, 442 (2011); In re Dinnan, 625 F.2d 1146,
1149 (5th Cir. Unit B 1980) (“A coercive, nonpunitive fine payable to the clerk of the court is an
appropriate tool in civil contempt cases.”). When determining an appropriate sanction, the Court
must consider, with appropriate findings made in the record, “(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) (quoting United States v.
United Mine Workers, 330 U.S. 258, 304 (1947)).
When a district court makes a finding of civil contempt, determines that incarceration is an
appropriate sanction, and the contemnor is located outside the district, the court may order that the
contemnor be delivered to the district after being taken into federal custody. See, e.g., Edwards v.
Bowles, No. 3:03-CV-2624-M, 2004 WL 308036, at *1 (N.D. Tex. Feb. 18, 2004), report and
recommendation adopted, No. 3:03-CV-2624-M, 2004 WL 741290 (N.D. Tex. Mar. 16, 2004).
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The Court finds that the SEC has established all three elements necessary to a finding of civil
contempt by clear and convincing evidence. See Martin, 959 F.2d at 47. First, the Court’s Orders
were in effect. See Part II, supra. Second, the Orders required certain conduct by the Meta 1
Defendants. (Id. at 3–7, 12–16). Third, the SEC has presented sufficient evidence to show that the
Meta 1 Defendants did not comply with the Court’s Orders. (See Mot. Show Cause, Dkt. 32, at 2–5,
7–8; Emails, Pl.’s Ex. A, Dkt. 32-1, at 2–9; Audio Tr., Pl.’s Ex. B, Dkt. 32-2, at 2–9; Meta 1 White
Paper, Dkt. 32-3, at 2–7; Mot. Suppl., Dkt. 38, at 2–3; Reece Decl., Dkt. 38-1 at 3–5 (listing
YouTube videos); Meta 1 Email Excerpts, Pl.’s Exs. 1 & 2, Dkt. 38-1, at 7–18). The SEC’s showing
as to each of these elements provides “that weight of proof which ‘produces in the mind of the trier
of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence
so clear, direct and weighty and convincing as to enable the fact finder to come to a clear conviction,
without hesitancy, of the truth of the precise facts’ of the case.” In re Medrano, 956 F.2d 101, 102 (5th
Cir. 1992) (quoting Cruzan by Cruzan v. Director, Missouri Dept. of Health, 497 U.S. 261, 285 n.11
(1990)). The Meta 1 Defendants’ noncompliance with the Court’s orders involves their “discrete,
readily ascertainable acts”; accordingly, the Court concludes they are amenable to adjudication
through civil proceedings “since the need for extensive, impartial factfinding is less pressing.”
Bagwell, 512 U.S. at 833. Moreover, the Meta 1 Defendants’ nonappearance at the show cause
hearing, even after receiving notice, is a separate ground for findings of civil contempt. See, e.g., Shah,
200 F. App’x at 350.
Next, the Court determines that the appropriate sanction for Dunlap and Schmidt is
incarceration until they comply with the Court’s affirmative commands to provide a sworn
accounting of investor funds and cease marketing and selling the Meta 1 Coin. See Bagwell, 512 U.S.
at 828. First, the harm of noncompliance is high: Dunlap and Schmidt have already obtained
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millions of dollars from putative investors, they continue to actively market their enterprise, and they
show no signs of ceasing their activities related to the Meta 1 Coin. See Lamar Fin. Corp., 918 F.3d at
567. Second, incarceration is likely to be effective: if incarcerated, Dunlap and Schmidt will be
unable to continue Meta 1’s operations, create marketing videos, or email their putative investors. See
id. Third, the financial burden that fines would impose on Dunlap and Schmidt is insignificant. They
have obtained millions of dollars in revenue from putative investors, so they are likely able to pay a
reasonable fine. But they cannot, in the wake of the Court’s asset freeze order. (Dkt. 8 at 7–12). As a
result, a fine would, curiously, neither be especially burdensome nor particularly effective. See Lamar
Fin. Corp., 918 F.3d at 567. Fourth, the Court finds that Dunlap and Schmidt willfully disregarded
the Court’s Orders. See id. They continue to produce advertising videos and send marketing emails,
and Dunlap’s filings consistently contest the Court’s foundational legal and legitimate authority, let
alone its ability to require certain conduct from the Meta 1 Defendants or require their appearance at
a hearing. Therefore, the Court finds that no sanction short of incarceration would adequately
coerce Dunlap and Schmidt into compliance.
The Court finds that there is less evidence of Bowdler’s conduct in failing to comply with
the Court’s orders. The majority of the SEC’s allegations concerning noncompliance focus on
Dunlap and Schmidt’s conduct. (See Mot. Show Cause, Dkt. 32; Mot. Suppl., Dkt. 38). Thus, the
harm of Bowdler’s noncompliance appears to be less than that caused by Dunlap and Schmidt’s
noncompliance. See Lamar Fin. Corp., 918 F.3d at 567. Despite Bowdler’s apparent lesser role in the
Meta 1 enterprise, affidavits signed by her that contest the Court’s authority and jurisdiction have
been filed, (see, e.g., Dkt. 35-3 at 141–60), and she also did not appear at the show cause hearing,
showing her willfulness in disregarding the Court’s orders. See Lamar Fin. Corp., 918 F.3d at 567.
Although the Court indicated its initial intent to impose a fine on Bowdler at the civil contempt
hearing, the Court now finds that a fine is not likely to effectively induce compliance at this time for
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the same reasons discussed above. See id. Instead, the Court will allow Bowdler a final opportunity to
comply with the Court’s orders. See Part IV, infra.
Though the Court finds that Meta 1 Coin Trust is in civil contempt as well, it does not
impose any sanction. Dunlap “created, owns, and controls” Meta 1 Coin Trust, “an incorporated
entity.” (Compl., Dkt. 1, at 5). Because Dunlap (and to a lesser extent Schmidt and Bowdler) is
synonymous with Meta 1 Coin Trust (if it indeed exists as a legally cognizable entity), the Court finds
that imposing duplicative sanctions would be ineffective. See Bagwell, 512 U.S. at 828.
Accordingly, having found that Dunlap and Schmidt are in CIVIL CONTEMPT of this
Court, IT IS ORDERED that Dunlap and Schmidt shall be coercively incarcerated until they
comply with the Court’s orders, (Dkt. 8, 31). The Court emphasizes that this order is intended to
ensure Dunlap and Schmidt’s compliance with the Court’s previous orders, not to punish them.
See United States v. Puente, 558 F. App’x 338, 341–42 (5th Cir. 2013). Dunlap and Schmidt shall be
released when they provide proof that they have complied with the Court’s orders. (See Dkt. 8 at 3–
7, 12–16; Dkt. 31 at 3–7, 11–13).
IT IS FURTHER ORDERED that the Clerk shall prepare and issue BENCH
WARRANTS for Dunlap and Schmidt’s arrests.
IT IS FURTHER ORDERED that the United States Marshals are directed, pursuant to
that warrant, to ARREST Dunlap and Schmidt and deliver them to federal custody in the Western
District of Texas.
IT IS FURTHER ORDERED that Bowdler shall provide proof, in writing, that she has
complied with the Court’s orders, (see Dkt. 8 at 4–7, 12–16; Dkt. 31 at 4–7, 11–13), by April 24,
2020, at 5:00 p.m. CDT. If Bowdler fails to provide this proof, the Court may find her in civil
contempt and impose a coercive daily fine or incarceration.
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IT IS FURTHER ORDERED that the Meta 1 Defendants may respond to the SEC’s
motion to supplement its motion for an order to show cause, (Dkt. 38), on or before April 27, 2020.
See W.D. Tex. Loc. R. CV-7(e)(2). Their filings must comply with all applicable procedural rules,
including Federal Rule of Civil Procedure 5.2 and the rule against pro se parties representing their
codefendants. (See Order, Dkt. 36); note 4, supra; see generally Ogbodiegwu v. Wackenhut Corrs. Corp., 202
F.3d 265, 1999 WL 1131884, at *2 (5th Cir. 1999) (per curiam) (“[P]ro se parties must still comply
with the rules of procedure.”). The Court will refrain from ruling on the SEC’s motion until at least
April 28, 2020; if the Meta 1 Defendants fail to respond, or their response is unpersuasive, the Court
will consider adding the supplemental conditions for purging the Meta 1 Defendants’ civil contempt
that the SEC requests.
IT IS FURTHER ORDERED that the SEC shall serve the Meta 1 Defendants with
copies of its motion to supplement its motion for an order to show cause, (Dkt. 38), by April 21,
2020, at 10:00 p.m. CDT, unless it already done so, (see Dkt. 38 at 4). (See Order, Dkt. 19
(permitting service by email)). Given the exigencies of this case, the Courtroom Deputy will serve
copies of this Order on the Meta 1 Defendants by email. (See id.).
SIGNED on April 21, 2020.
UNITED STATES DISTRICT JUDGE
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