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SEC v. DIVERSIFIED GROWTH CORP.

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA


April 9, 1984

Securities and Exchange Commission
v.
Diversified Growth Corp., et al.

Penn

The opinion of the court was delivered by: PENN

Before the Court are three motions: (1) Motion of the Securities and Exchange Commission for a Judgment Against Thomas C. Fitzgerald, Jr. Assessing Fines Previously Imposed for Failure to comply with this Court's Judgment of Permanent Injunction ("SEC motion"); (2) Motion of Defendant Eastern Empire Corporation for Order of Civil Contempt and Sanctions against Thomas C. Fitzgerald, Jr., Diversified Growth Corporation, and American Diversified Corporation ("Eastern motion"); and (3) Motion of Thomas C. Fitzgerald, Jr. for Relief from Findings, Orders, and Judgment of this Court ("Fitzgerald motion"). Upon consideration of the entire record, the Court grants the SEC's and Eastern's motions and denies Fitzgerald's motion.

Background

 In January 1981, the Securities and Exchange Commission ("SEC") commenced this action against Diversified Growth Corporation ("DGC"), American Diversified Corporation ("ADC"), and Eastern Empire Corporation ("EEC") alleging, among other things, violations of the reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78m(a), and Rules 13a-1 and 13a-13 thereunder, 17 CFR §§ 240.13a-1 and 240.13a-13. The Complaint specifically alleged that DGC, ADC, and EEC had failed to file their annual reports (10-Ks) for the fiscal years 1976 through 1979 (ADC and EEC) and 1977 through 1980 (DGC), and quarterly reports (10-Qs) for the fiscal quarters ended June 30, 1977 through September 30, 1980 (DGC) and March 31, 1978 through September 30, 1980 (ADC and EEC). *fn1"

 On June 8, 1983, after hearing and argument, this court entered a Permanent Injunction ("Injunction") against DGC, ADC, and EEC. The Injunction ordered, inter alia, DGC and ADC to file their delinquent 10-K and 10-Q reports on or before June 10, 1983, *fn2" to file in timely fashion all required reports in the future, and to provide EEC with all information and documents necessary to enable EEC to prepare its annual and quarterly reports.

 Neither DGC nor ADC complied with the Court's Injunction. On June 18, 1983, after negotiations with the SEC's staff, DGC, ADC, and Fitzgerald consented to findings of civil contempt and entry of an order requiring the reports to be filed on or before July 15, 1983. In addition, Thomas C. Fitzgerald, Jr., the Chief Executive Officer and Chairman of the boards of DGC and ADC, consented to entry of an order imposing coercive fines of $1,000 per day on him personally should DGC and ADC fail to file the delinquent reports by the July 15 deadline. This order was entered on June 20, 1983 ("June 20 Order").

 On July 15, 1983, DGC filed documents which purported to be 10-Ks for the fiscal years ended March 31, 1977 through 1983, and ADC filed documents which purported to be 10-Ks for the fiscal years ended December 31, 1976 through 1982, 10-Qs for the quarters ended March 31, June 30, and September 30, 1976 through 1982, and 10-Qs for the quarters ended March 31, and June 30, 1982. *fn3" DGC did not file any 10-Qs until July 18, 1983.

 On July 18, 1983, counsel for the SEC telephoned counsel for DGC, ADC, and Fitzgerald to advise them that the documents submitted were deficient. On July 19, 1983, counsel for the SEC wrote a follow-up letter advising the defendants that although a thorough review had not yet been completed, a preliminary examination showed that the 10-Ks were deficient for their failure to include audited financial statements, and that further deficiencies might surface. The letter also advised the defendants that it was the position of the SEC that neither the June 20 Order nor the Injunction had been complied with and that the $1,000 per day fines were running. The SEC received no response.

 On September 9, 1983, EEC filed its own motion to hold DGC, ADC, and Fitzgerald in contempt and to impose sanctions for their failure to provide EEC the corporate records specified in the Injunction.

 On September 19, 1983, the SEC, taking the position that the July 15 filings did not comply with the Court's orders, moved to enforce the June 20 Order. The motion sought, inter alia, an order reducing the fines to judgment and an order permitting the SEC to execute against Mr. Fitzgerald's assets and/or property.

 On November 1, 1983, the parties appeared before the Court to announce a tentative settlement. The parties, with Mr. Fitzgerald present, represented to the Court that a settlement had been reached, and that the only unresolved matter was agreement on the name (but not the concept) of a special agent to examine the defendants' books and prepare the delinquent reports. It is the unrebutted *fn4" assertion of the SEC that on November 16, 1983, defendants advised the SEC that one of the suggested candidates was acceptable. However, on November 17, 1983, Mr. Fitzgerald refused to sign the settlement. See Plaintiff's Motion for Oral Argument at 3, and transcript of the December 5, 1983 hearing ("Transcript") at 55-56.

 Oral argument on the SEC's and Eastern's motions was set down for December 5, 1983. Approximately eight minutes before the hearing, counsel for Fitzgerald filed an affidavit in opposition to Eastern's September 9 motion for contempt. This was the first time Fitzgerald had responded to Eastern's motion. In addition, Fitzgerald submitted a motion for relief from findings, orders, and judgment of the Court, arguing lack of personal jurisdiction, *fn5" and amendments to the July 15 filings. The Court heard oral argument on all three motions and took under advisement the SEC's and Fitzgerald's motions. With regard to Eastern's motion, the court ruled from the bench that since the motion had not been responded to in timely fashion, the motion would be deemed conceded pursuant to the Local Rules. Transcript at 57.

 The Motions

 A. Eastern's Motion

 Local Rule 1-9(d) provides that if an opposing statement to a motion is not filed within the prescribed time -- thirteen days if the motion was mailed -- the court may treat the motion as conceded. In this case, the opposition was filed nearly three months late. *fn6" No excuse for this delay has been offered. Accordingly, the Court holds by its earlier ruling and deems the motion conceded.

 In his opposition to Eastern's motion, Fitzgerald asserts that all of EEC's documents have been turned over to EEC and therefore that there has been compliance with the Injunction. The Court is unpersuaded. Counsel for EEC has pointed out to the Court that Fitzgerald has made this same assertion several times in the past in response to document requests and subsequently found the requested documents to exist. More significantly, counsel for EEC has argued that certain financial statements contained in a settlement disclosure in a prior action involving the defendants could not have been made without EEC documents which EEC has not received. Transcript at 52-54. This argument has not been rebutted by defendants.

 For the foregoing reasons, Eastern's motion is granted. DGC, ADC, and Fitzgerald are hereby found in contempt for failing to furnish records to EEC as required by this Court's Injunction. Compensatory and coercive sanctions have been imposed according to terms set forth in the Order accompanying this Memorandum.

 B. Fitzgerald's Motion

 Fitzgerald has made a motion for relief from this Court's June 20 Order, November 2, 1983 Order, *fn7" and Judgment of Permanent Injunction. The motion is accompanied by a document entitled "Withdrawal of Admission to the Jurisdiction of this Court and Withdrawal of Consent to Findings and Order of June 20, 1983". The basis for the motion is that the Court lacks personal jurisdiction over Mr. Fitzgerald. Fitzgerald argues that he is not a party to the lawsuit and was not served with a copy of the complaint, summons, or injunction.

 Simply put, Fitzgerald's motion is frivolous and factually incorrect. The SEC has provided the Court with copies of the U.S. Marshals Process Receipt and Return which show that Mr. Fitzgerald was personally served with a copy of the summons and complaint on January 27, 1981. Fitzgerald's own consent, dated June 18, 1983, acknowledges receipt of the Injunction.

 Fitzgerald's argument that the Court lacks personal jurisdiction over him, and his attempt to withdraw his consent to the jurisdiction of this Court and to the entry of prior orders are both unavailing. Fed. R. Civ. P. 65(d) provides that "every order granting an injunction . . . is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise " (emphasis added). See also Wilson v. United States, 221 U.S. 361, 376, 55 L. Ed. 771, 31 S. Ct. 538 (1911); SEC v. VTR, Inc., 410 F. Supp. 1309, 1314 (D.D.C. 1975); U.S. v. Greyhound Corp., 363 F. Supp. 525, 571 (N.D. Ill.), aff'd, 508 F.2d 529 (7th Cir. 1974). Fitzgerald was an officer of the defendant corporations -- Chief Executive Officer and Chairman of the board -- and received notice of the Injunction.

 Moreover, Fitzgerald expressly consented to the personal jurisdiction of the Court over him. The "Consent of Thomas C. Fitzgerald, Jr. to Findings of Civil contempt and Order Imposing Fines" (signed by Fitzgerald) states at paragraph 3: "Fitzgerald admits to the jurisdiction of this Court over him and over the subject matter of this action." The language of this consent is unequivocal. *fn8"

  Fitzgerald is himself a lawyer. He has been at all times pertinent to this motion represented by counsel. *fn9" He voluntarily, knowingly, and expressly consented to the jurisdiction of this Court over him, to the finding of contempt, and to the imposition of fines. Transcript at 57. Mr. Fitzgerald's motion is merely the latest in a long line of frivolous attempts to delay and avoid the inevitable: contempt, sanctions, and inquiry into the affairs of the corporations he managed. The motion is denied.

 C. SEC's Motion

 The SEC has filed a Motion for a Judgment Against Thomas C. Fitzgerald, Jr. Assessing Fines Previously Imposed for Failure to Comply with this Court's Judgment of Permanent Injunction. The SEC alleges that although DGC and ADC did submit some filings purporting to be 10-Ks and 10-Qs on July 15, 1983, the filings were so materially deficient that they did not comply with the SEC's Rules and Regulations or the Court's June 20 Order. The SEC requests, inter alia, that the coercive fines specified in the June 20 Order be assessed against Mr. Fitzgerald and that a money judgment in the amount of the fines be entered for execution against Fitzgerald's property and/or assets. In addition, the SEC has requested that a special agent be appointed to prepare and complete accurate filings for DGC and ADC.

 Mr. Fitzgerald expressly consented to the June 20 Order finding him and the parties in civil contempt and imposing fines on him personally should DGC and ADC fail to make the requisite filings by July 15, 1983. Consequently, there is no issue as to whether Fitzgerald is in contempt. The only issues are: (1) whether the July 15 filings complied with the June 20 Order and (2) if not, whether the December 5, 1983 amendments rectified the problem. After careful review of the SEC's pleadings, their lengthy and well-documented declarations of the specific deficiencies, the opposing papers, the Court's own review of the filings, and the entire record herein, the Court concludes that neither the July 15 nor the December 5 filings complied with the June 20 Order.

 (i) The July 15 Filings

 The SEC does not allege a few, superficial deficiencies. Rather, it cites a host of omissions, mistakes, and inconsistencies which are so fundamental that the filings are rendered virtually useless as reporting and disclosure documents. *fn10"

 Foremost in the deficiencies cited is the lack of adequate financial statements. First, DGC's and ADC's 10-Ks fail to contain audited financial statements as required by Regulation S-X, 17 CFR § 210.1-01 et seq. Indeed the 10-Ks contain no financial statements as such. Certain financial statements are included in the 10-Qs. However, there is no cross-reference in the 10-Ks to direct the reader to the 10-Qs and, more critically, the financials in the 10-Qs are not audited as is required for 10-Ks. 17 CFR § 210.3-01 et seq.

 The failure to provide audited financial statements is not a mere technical matter. As the court stated in SEC v. Beisinger Industries Corp., 421 F. Supp. 691, 694-95 (D. Mass. 1976), aff'd, 552 F.2d 15 (1st Cir. 1977) (citations omitted):

 

it is also clear that the registrant's annual reports were inadequate to meet the periodic reporting requirements because of their failure to provide fully audited financial statements. These were not mere technical deficiencies but rather were serious violations of the periodic reporting requirements. The failures to provide timely reports and adequate financial information are offensive to the central purpose of the periodic reporting system Congress established through the Exchange Act. For the system to work properly the information reported must be both current and adequate.

 Defendants argue that they are relieved of the requirement of furnishing audited financials by 17 CFR § 210.3-11 which exempts "inactive entities", and by 17 CFR § 240.12b-21 which creates an exemption where there would be "unreasonable effort or expense". Both exemptions are inapplicable.

 In order to claim the exemption as an "inactive entity," expenditures for all purposes for a fiscal year must not have exceeded $100,000. § 210.3-11(c). The financial information which was provided by ADC indicates that ADC had general and administrative expenses in excess of $100,000 in 1975, 1976, 1979, 1980, 1981 and 1982. In addition, to qualify as an inactive entity there must have been no material change in the business of the company, § 210.3-11(d). An affidavit submitted by Mr. Fitzgerald for other purposes states that "as the regular accountant doing in-house work was experienced in life insurance accounting, but not in oil and gas, as the nature of DGC's and ADC's business changed, the independent CPA . . . was more and more called upon to contribute to the accounting effort". *fn11" In addition, during the years in question EEC was divested by DGC and ADC, the insurance assets were sold or disposed of in large part, and the corporations moved into the oil and gas business. *fn12"

 It is true that Fitzgerald has submitted affidavits stating that there have been no material changes and that the companies are inactive. His declarations, however, are conclusory, unsupported by any proof whatsoever, and contrary to the evidence found in Fitzgerald's own papers. Clearly neither DGC nor ADC meets the test of an inactive company for purposes of § 210.3-11.

 Defendants' second argument, that they are exempt from filing audited financials because of the "unreasonable effort or expense" involved, is similarly without merit. Subparagraph (b) to § 240.12b-21 states that this exemption may be claimed only if the registrant includes a statement showing what unreasonable effort or expense would be involved. This is an express precondition to claiming this exemption. No such statement was included in the filings. Even in their pleadings defendants have given no account of the expenses or effort that would be involved other than the most general and unspecific statements. Moreover, the SEC permits the filing of unaudited financials only in the most unusual circumstances. See SEC Release No. 34-9660, June 30, 1972. In conclusion, neither DGC nor ADC are exempt from filing audited financials.

 The failure to provide audited financials is so material that even if this were the only problem it would render the filings inadequate for purposes of the June 20 Order. See SEC v. Beisinger Industries Corp., supra. But in fact the deficiencies do not end here. With regard to the 10-Ks, almost every item is incomplete and superficial. The business discussion, particularly the discussion of the oil and gas operations, is incomplete and does not comply with § 229.101. Item 3 of the 10-Ks (properties) contains only a one sentence discussion of the lease of the executive offices of the companies. There is no discussion in this section of the oil and gas properties despite the explicit instructions in § 229.102 that such be included, and in spite of the fact that such properties appear to constitute the principal assets of the companies. *fn13" Item 5 (legal proceedings) omits any mention of this lawsuit which has been pending since 1981. While 17 CFR § 229.303 calls for a thorough discussion and analysis of the results of operations, liquidity, and capital resources in the Management Discussion and Analysis Section, ADC's 10-Ks only provide one sentence expressing a decrease in general and administrative expenses. Even this one sentence fails to provide any meaningful explanation for the decrease. Finally, the documents were not even signed by all the proper officers and directors as required by General Instruction D to Form 10-K. This list of deficiencies is not exhaustive.

 In addition to the aforementioned omissions and lack of information, the filings are replete with inconsistencies, typographical errors, and misinformation. To mention only a few: the 10-Ks state that certain financial statements and an accountant's report are included when they are not (see Item 10 of the 10-Ks); the first sentence of DGC's 1983 10-K Summary of Operations section states "the preceding pages [plural] present a thirteen year consolidated summary of earnings (loss) to the Registrant", when in fact the preceding page [singular] only goes back seven years; the financial statements in ADC's 10-Ks have the brackets which represent losses in the wrong places so that the statements indicate a profit where there should be a loss and vice versa; the ADC 1982 10-K lists Fitzgerald as being 58 years old in Item 8 but 57 years old in Item 12; Item 6 of ADC's 1982 10-K lists the number of shares of Class A Common Stock outstanding for 1974 as 3,540,625 while Item 6 of ADC's 1981 10-K puts the number for 1974 at 3,570,625; the cover page to ADC's 10-Ks states that the common stock has no par, yet Item 6 notes a par value of 10 cents and 1 cent; the business discussion in DGC's 1983 10-K is identical to the discussion in DGC's 1982 10-K and to the oil and gas discussion in ADC's 1981 10-K; and finally, the general and administrative expenses are reported as being $36,000 for 1977 through 1983, i.e. no change whatsoever.

 The inconsistencies and misinformation not only render the reports useless for reporting and disclosure purposes, but also reveal an almost willful lack of attention and diligence in the preparation of the filings. Indeed it is hard to imagine that the filings are the product of two years of concentrated work as Fitzgerald has contended. Moreover, these errors, which have been discovered only where an inconsistent piece of information happened to be noticed, make the Court -- and the investor -- question the accuracy of the entire report.

 As with the 10-Ks, the purported 10-Qs are materially deficient. First, the financial statements do not contain quarterly comparisons as is required by 17 CFR § 210.10-01. In addition, the financial statements contain footnote references which do not exist. For example, note 3 to ADC's financials refers to a note 9 which does not exist. No financials for Jackson Life were contained in the July 15 filings.

 The SEC's allegations are amply supported by detailed Declarations. The Court's own review of the July 15 filings confirms that they are wholly inadequate. Moreover, except for the allegations of unaudited financials, defendants have not specifically responded to any of the detailed allegations. Rather, defendants have made blanket statements that: (1) the filings were adequate for a first time filing; *fn14" (2) the accepted practice with periodic filings is for the registrant to submit, the SEC to comment, and the registrant to respond; *fn15" and (3) the Court's Injunction did not specify certified financials or letter perfect filings. *fn16" These arguments are without merit. First, the filings were not adequate for a first time filing; second, it is not and should not be the accepted practice for the SEC to accept "bed-bug" material and make corrections -- especially when a company has been delinquent in its reporting obligations for seven years and is under both an injunction and a contempt order. Finally, the Court's Injunction Order meant filings which would substantially comply with the SEC's Rules and Regulations. Any other interpretation would ignore the purposes of the Injunction and the reporting and disclosure purposes of periodic filings.

 (ii) The December 5 Filings

 The only issue remaining is whether the December 5 amendments corrected the deficiencies in the July 15 filings. After careful consideration of the detailed declarations of the SEC *fn17" the statements of SEC counsel in Court, *fn18" and the Court's own review of the documents, the Court holds that the December 5, 1983 filings are materially deficient and do not come close to correcting the deficiencies in the July 15 filings. Many of the deficiencies which were noted in the SEC's September 19 motion remain uncorrected and unaddressed. Mr. Fitzgerald's statement that the corrective filings address themselves to the specific comments made in the SEC affidavits is patently incorrect. *fn19" In addition there has been no response to the SEC's Declarations which list the deficiencies in the December 5 filings. Because the allegations of the deficiencies have not been responded to, they should be deemed conceded under Local rule 1-9(d).

 (iii) Relief

 Having concluded that the July 15, 1983 filings did not comply with the June 20 Order, the Court assesses fines of $1,000 per day from July 16, 1983 through December 5, 1983. This amounts to 143 days and $143,000. Judgment in this amount for execution against Mr. Fitzgerald's assets and/or property is granted.

 Having concluded that the December 5 filings did not comply with the June 20 Order or correct the July 15 filings, the fines should still be running. The Court, however, will not penalize Mr. Fitzgerald for the time taken by the Court to resolve the matter. *fn20" Accordingly, the Court will not, at this time, assess fines after December 5, 1983. The Court notes, however, that DGC, ADC, and Fitzgerald are still in contempt and not in compliance with the Injunction or the June 20 Order.

 In addition to the assessment of coercive fines, the Court grants the SEC's request for the appointment of a special agent to review the books of DGC, ADC, and Fitzgerald, to prepare and file the delinquent reports, and to take any other action in furtherance of these tasks. The appointment of a special agent is necessitated at this point not only by the failure of defendants to comply with the June 20 Order, not only by their failure to file for the last seven years, but also by defendants' continued inability to file timely reports. Even as Fitzgerald has been arguing that DGC and ADC have complied, DGC and ADC continue to file out of time. The June 30, 1983 10-Qs, which were due August 15, 1983, and the September 30, 1983 10-Qs due November 15, 1983, were not filed until December 5, 1983. As of February 17, 1984 DGC had not filed its December 31, 1983 10-Q. Clearly the appointment of a special agent is in order. See SEC v. Beisinger Industries Corp., supra.

 The special agent and any other personnel employed by him or her will be compensated out of the fines assessed. In addition, Mr. Fitzgerald will be required to compensate the SEC, the special agent, and any other personnel, for fees and expenses which exceed the amount of the fines assessed. Mr. Fitzgerald is required to cooperate fully with the SEC and the special agent. Any further contumacy will result in the further assessment of coercive civil fines of $1,000 per day until compliance. Fitzgerald is further admonished to heed the provisions of the Permanent Injunction requiring him to cause ADC and DGC to file timely and adequate periodic reports in the future.

 Finally, Fitzgerald will be required to compensate the SEC for their costs and counsel fees incurred as a result of the contempt.

 An Order consistent with this Memorandum has been entered.

 [Order]

 Before the Court are three motions: (1) Motion of the Securities and Exchange Commission for a Judgement Against Thomas C. Fitzgerald, Jr. Assessing Fines Previously Imposed for Failure to Comply with this Court's Judgment of Permanent Injunction ("SEC motion"); (2) Motion of Defendant Eastern Empire Corporation for Order of Civil Contempt and Sanctions Against Thomas C. Fitzgerald, Jr., Diversified Growth Corporation, and American Diversified Corporation ("Eastern motion"); and (3) Motion of Thomas C. Fitzgerald, Jr. for Relief from Findings, Orders, and Judgment of this Court ("Fitzgerald motion").1a After careful consideration of the motions, the oppositions, thereto, and the entire record herein, and for the reasons specified on the accompanying Memorandum, it is hereby

 ORDERED:

 1. That the SEC's motion is granted;

 2. That Eastern's motion is granted;

 3. That Fitzgerald's motion is denied and the document entitled "Withdrawal of Admission to the Jurisdiction of this Court and Withdrawal of Consent to Findings and Order of June 20, 1983" is a nullity without any force;

 4. That Fitzgerald, DGC, and ADC shall, not later than May 9, 1984 reimburse EEC for its expenses incurred as a result of EEC's nonreceipt of its records, such expenses to include:

 (a) travel expenses and meals of EEC's attorneys incurred in attending this Court's status conferences of June 20, July 18, September 13, November 21, and December 5, 1983;

 (b) the reasonable fees and expenses of EEC's Philadelphia and Washington, D.C. attorneys in preparing for and participating in such conferences;

 (c) the reasonable fees and costs of EEC's Philadelphia and Washington, D.C. attorneys in preparing motions, stipulations and other submissions to this Court, including the present motion for contempt, and in otherwise attempting to secure the compliance of Fitzgerald, DGC, and ADC with this Court's orders to deliver documents;

 5. That EEC's counsel shall submit an affidavit detailing his fees and disbursements for the Court's consideration;

 6. That judgment against Thomas C. Fitzgerald and/or his property and assets wherever located be and is entered in the sum of $143,000 for fines accrued from July 15, 1983, to and including December 5, 1984;

 7. That Thomas C. Fitzgerald, Jr., pay said sum to the registry of this Court to be held by the Clerk for the purposes hereinafter specified;

 8. That a Special Agent shall be appointed to cause to be prepared complete and accurate annual reports on Form 10-K for DGC for its fiscal years ended March 31, 1977, 1978, 1979, 1980, 1981, 1982 and 1983 and for ADC for its fiscal years ended December 31, 1976, 1977, 1978, 1979, 1980, 1981, 1982 and 1983, quarterly reports for DGC for its quarters ended June 30, September 30, and December 31, for the years 1977 through 1983, and quarterly reports for ADC for its quarters ended March 31, June 30, and September 30, for the years 1977 through 1983, and such other reports for DGC and ADC as may become due until the time that the Special Agent shall have caused the delinquent reports to be filed;

 9. That the Special Agent shall have the power and is directed to:

 a) retain and supervise an independent firm of certified public accountants and/or such other professionals whose opinions and reports may be necessary to accomplish the preparation of complete and accurate annual and quarterly reports in accordance with applicable rules and regulations of the SEC;

 b) cause the accounting firm to perform such audits of DGC and ADC as may be necessary to obtain financial statements which comply with SEC rules and regulations;

 c) inspect and have unfettered access to all books and records of DGC, ADC, and Fitzgerald (as they relate to DGC and ADC), wherever located;

 d) consult with the SEC from time to time as may be appropriate, in the performance of his duties and make available to the SEC any documents or information obtained in the course of his duties; and

 e) consult with the Court for advice and direction as may be necessary in the performance of his duties;

 10. That the SEC submit the name and qualifications of the proposed Special Agent to the Court for approval;

 11.That the SEC submit to the Court for approval an estimate of the fees, costs, and rates of the Special Agent, prior to the appointment;

 12. That the Special Agent shall, in connection with his duties respecting DGC's and ADC's annual and quarterly reports, be empowered to provide EEC all documents which belong to it and all information and/or documents which may exist and have not previously been furnished to EEC which are necessary for EEC to prepare its quarterly and annual reports described in Paragraph VII of the Judgment of Permanent Injunction as to DGC, ADC and EEC;

 13. That, at the time the delinquent reports are filed, the Special Agent shall make any recommendations he deems appropriate to insure the future compliance of DGC and ADC with applicable reporting requirements;

 14. That said reports shall be filed with the SEC at its offices in Washington, D.C.;

 15. That Thomas C. Fitzgerald, Jr., DGC, ADC, their agents, employees, officers and directors, shall cooperate fully with the Special Agent in the performance of his duties.

 16. That:

 a) the Special Agent shall be paid such reasonable compensation and be reimbursed for such expenses as shall be allowed by this Court;

 b) all sums held hereunder shall be disbursed solely for the payment of such expenses, including the fees of accountants and other professionals and for compensation of the Special Agent, as the Court may determine as necessary to effect the filing of the annual and quarterly reports specified herein and such other periodic reports of DGC and ADC as may become due during the tenure of the Special Agent;

 c) disbursements from the sum deposited hereunder may be made only after specific order of the Court on motion of the Special Agent after notice to parties and opportunity to be heard;

 d) if the costs hereunder shall be less than the amounts deposited in Court, any funds remaining after payment of such costs shall be paid to the United States Treasury;

 17. That plaintiff may make further application to this Court for interim assessment of fines against Fitzgerald or for further sanctions as may be necessary;

 18. That Fitzgerald shall reimburse plaintiff for attorneys fees and costs incurred as a result of Fitzgerald's disobedience of the Order Imposing Fines Commencing July 15, 1983 and plaintiff shall submit an affidavit detailing its attorneys fees and costs incurred in connection with its Motion;

 19. That this Court shall retain jurisdiction over DGC, ADC and Fitzgerald for all purposes, including, but not limited to, implementing and carrying out the terms of this Order, and that nothing herein shall be construed as precluding the SEC from seeking other and further sanctions respecting this matter.


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