as to the location and disposition of investor funds and to repatriate such funds. They have refused to do either, and the excuses proffered for their failure to comply are inadequate to justify their conduct. The Court therefore holds them in civil contempt.
IV. CLEAR AND CONVINCING EVIDENCE OF CONTEMPT
A. The Accounting Is Deficient
The Bankers Alliance defendants submitted a Joint Accounting, signed by each of them. But see infra note 3. In it each of them has admitted receipt of at least $ 3.725 million from United States investors through the investment program described in the complaint. See Joint Accounting at 10-11. Yet nowhere in the Joint Accounting is there a statement of the location and disposition of funds recovered from investors as required by the Court's Preliminary Injunction. Failure to comply fully with an order to provide an accounting is itself a valid basis for a finding of contempt. SEC v. Current Financial Services, Inc., 798 F. Supp. at 808.
The declarations of defendants Roy Lee and Allan Nash do not compel a contrary result. Roy Lee is the President of L.F.S. Lee Financial Services, the President of Lee Financial Group, Ltd., a principal in B.A. Holding Co., and Treasurer of Bankers Alliance Corp. Declaration of Roy Lee ("Lee Decl.") at PP 3-5, Defendants' Exhibit No. 1 at Contempt Hearing. Mr. Lee states in his declaration that all funds and assets received from investors were wire-transferred from Bankers Alliance and B.A. Holding Co. accounts at First of America, Comerica Bank and Bank One in the United States to two Lee Coy Traders accounts at Citibank in Singapore. He admits that he has joint signatory authority with defendant Steven Higley over one of these Singapore accounts. Lee Decl. at PP 7, 10; Joint Accounting at 3. Mr. Higley is a joint signatory with Mr. Stupaya Sio Ayaro, who is not a defendant in this action, on the second account. Joint Accounting at 3. Defendants' currency trading was to be done out of these two Lee Coy Traders accounts at Citibank, those on which Mr. Higley was a cosignatory with either Mr. Lee or Mr. Ayaro. Post-Hearing Declaration of Deborah R. Meshulam ("Meshulam Decl.") at P 6(d)(iv); Deposition of Fred Rumack ("Rumack Dep."), Meshulam Decl., Ex. 5 at 149-52.
Mr. Lee has provided no evidence that money was transferred out of either of the Citibank accounts. Yet he states that since March 2, 1995, the day on which the Court issued its Temporary Restraining Order, neither of his companies -- Lee Financial Group, Ltd. nor L.F.S. Lee Financial Services -- has held or controlled any of these funds and that since that date neither he nor his companies "have had any knowledge of the location or disposition of any of the funds received . . . ." Id. at PP 9, 12.
The Court does not credit Mr. Lee's statement that he now has no knowledge of the status of the account to which he was a joint signatory. See Lee Decl. at P 10. He has not stated that he has sought to obtain the records of the account or that he is not entitled to such records. He has not said that he has asked his codefendant and Cosignatory, Mr. Higley, where the funds have gone -- if they have gone anywhere. He simply pleads ignorance to any knowledge of the account's status or to the location of investor funds after March 2, 1995. The Court will not permit Mr. Lee to hide behind his apparently self-created veil of ignorance. It is inconceivable that Mr. Lee does not know or cannot find out what happened to the money under his control. Lee must account for where the funds have gone since being transferred to the Citibank accounts, and, indeed, whether the funds have ever left the Citibank accounts.
Allen Nash is Vice President of L.F.S. Lee Financial Services, Inc., Vice President of Lee Financial Group, Ltd., and Secretary of Bankers Alliance Corp. Declaration of Allan D. Nash ("Nash Decl.") at PP 3-5, Defendants' Exhibit No. 2 at Contempt Hearing. He states that since March 2, 1995, he has not held or controlled any investor funds or assets and has "had no knowledge of the location or the disposition of any funds received . . . ." Nash Decl. at PP 8, 10. Mr. Nash does not state what he knew before the Court entered the Temporary Restraining Order on March 2, 1995, or what he or his codefendants may have done with the funds upon receiving notice of the TRO.
The assertions of their lack of knowledge and control notwithstanding, the declarations of Messrs. Lee and Nash nowhere state that it was impossible for the Bankers Alliance defendants to provide a full accounting, including information about the location and disposition of investor funds, as required by the Court's Preliminary Injunction. Because impossibility is a defense to civil contempt, the burden is on them to "demonstrate [their] inability to comply 'categorically and in detail.'" SEC v. Current Financial Services Inc., 798 F. Supp. at 808; see also Tinsley v. Mitchell, 804 F.2d at 1256. Yet, Mr. Lee and Mr. Nash have provided no evidence that compliance was impossible. Furthermore, their declarations nowhere state or otherwise show why Messrs. Lee and Nash would have agreed to this provision of the Preliminary Injunction if they believed compliance was impossible. Rather, the Court can infer from their carefully worded declarations that before March 2, 1995 -- the day this Court entered its Temporary Restraining Order, of which defendants were given notice -- Messrs. Lee and Nash knew where the investor funds were located, that Mr. Lee was one of those who had control over the funds and that both Mr. Lee and Mr. Nash know where the funds were moved (if they were moved) before the Joint Accounting was filed.
Rather than declare lack of knowledge as a defense, after signing the Joint Accounting and filing it with the Court, defendants Steven Higley and John Finegan invoked their Fifth Amendment privilege not to be compelled to provide testimony that may incriminate them. Declaration of Steven C. Higley, Defendants' Exhibit No. 3 at Contempt Hearing; Declaration of John Finegan, Defendants' Exhibit No. 4 at Contempt Hearing.
The Court must construe the privilege against self-incrimination broadly and must sustain it if it is "evident from the implications of the question, in the setting in which it is asked, that a responsive answer . . . might be dangerous because injurious disclosure could result." Hoffman v. United States, 341 U.S. 479, 486-87, 95 L. Ed. 1118, 71 S. Ct. 814 (1950); see also Steinbrecher v. C.I.R., 712 F.2d 195, 198 (5th Cir. 1983); SEC v. Parkersburg Wireless Ltd. Liab. Co., 156 F.R.D. at 535. The Court need not, however, excuse a party from answering "merely because he declares that in so doing he would incriminate himself -- his say-so does not of itself establish the hazard of incrimination." Hoffman v. United States, 341 U.S. at 486. Rather, a party invoking the Fifth Amendment "must show a 'real danger,' and not a mere imaginary, remote or speculative possibility of prosecution" based on the information withheld. In re Morganroth, 718 F.2d 161, 167 (6th Cir. 1983) (citations omitted); see In re Sealed Case, 263 U.S. App. D.C. 357, 825 F.2d 494, 497 (D.C. Cir.), cert. denied, Roe v. United States, 484 U.S. 963, 98 L. Ed. 2d 391, 108 S. Ct. 451 (1987); Steinbrecher v. C.I.R., 712 F.2d at 197. He bears the burden of proving that the danger exists by coming forward "with credible reasons why revealing such information presents more than a frivolous fear of incrimination." SEC v. Parkersburg Wireless Ltd. Liab. Co., 156 F.R.D. at 537 (quoting In re Connelly, 59 Bankr. 421, 435 (Bankr. N.D. Ill. 1986)); see Ueckert v. C.I.R., 721 F.2d 248, 250 (8th Cir. 1983).
The Court finds that it is not apparent how Mr. Higley's and Mr. Finegan's revealing information about the location and disposition of investor funds is any more incriminating than what they already have revealed in the Joint Accounting. They have not shown, or even attempted to show, how disclosing the additional information required by the Court's Order would incriminate them. These defendants have failed to provide any credible evidence (or any evidence whatsoever) that they have a nonfrivolous fear of further incrimination or prosecution. They have asserted the Fifth Amendment privilege in conclusory language without demonstrating a good faith basis as to why they believe their statements will incriminate them.
As for defendants Bankers Alliance Corp., Lee Financial Group Ltd., L.F.S. Lee Financial Services, and B.A. Holding Co., each of these entities signed the Joint Accounting through an agent, Mr. Higley for Bankers Alliance and Mr. Lee for each of the other defendants. Each of them also is in contempt of the Court's Order by failing to provide information required by the Preliminary Injunction, the terms of which they negotiated through counsel and which they signed through their agents, Messrs. Higley and Lee.
The Court therefore concludes that all of the Bankers Alliance defendants are in contempt of the Court's Order to provide an accounting of the location and disposition of investor funds.
B. The Defendants Have Failed To Repatriate
In the Preliminary Injunction, which they negotiated through counsel, consented to and signed, the Bankers Alliance defendants knowingly agreed to repatriate all investor funds or assets by March 20, 1995. By the Joint Accounting, each defendant admitted having received at least $ 3.725 million from investors. See Joint Accounting at 10-11. The defendants' repeatedly represented that they would repatriate these funds. Because they did not repatriate the funds as required, the defendants are in contempt of the Court's Order.
The defendants have made representations to the SEC and to the Court on several occasions that they would return the investor funds to the United States. In a March 7, 1995, hearing before the Court, the Bankers Alliance defendants represented, through counsel, that they would return the investor funds to the United States by March 20, 1995. Transcript of March 7, 1995, Hearing at 3. In the Opposition of the Bankers Alliance Defendants to Application for Order to Show Cause, filed on March 24, 1995, the defendants asserted that they had "made substantial efforts to repatriate the $ 3,725,000 received from U.S. investors through the investment program described in the Complaint" and that
within a matter of days, [defendants] intended to substitute cash for the [certificate of deposit] and assignment. Defendants have undertaken that, by Monday, March 27, at the latest, they will transfer $ 3,725,000 to counsel for immediate retransmission to the Court Registry. . . . There was no reason for Defendants to place a $ 5 million CD within the reach of the SEC if their goal was to avoid repatriating investor funds.
Def.s' Opp. at 2-3.
Statements made to investors by the defendants also support the inference that the defendants controlled the funds and therefore were capable of repatriating them. After the TRO was entered, defendant Nash told one investor that the funds were being returned to the United States. Meshulam Decl. P 6(c); Deposition of William Brogden, Meshulam Decl., Ex. 4 at 14041 and Dep. Ex. 24. Messrs. Finegan and Higley told another investor that he could withdraw his funds with thirty days' notice. Meshulam Decl. at P 6(d)(ii); Rumack Dep. at 82-83, 85; see also Meshulam Decl. at P 6(b)(iv); Deposition of Richard Kendall ("Kendall Dep."), Meshulam Decl., Ex. 3 at 60-61. For the investors to have this ability, the funds would have had to be under the control of Mr. Finegan or Mr. Higley. In a March 29, 1995, document entitled "latest Legal Update" from Bankers Alliance to its investors and partners and faxed to the Court, the Bankers Alliance defendants briefly explained their view of the SEC investigation and stated that "This Does Not Affect Our Private Placement." If the SEC investigation and the resulting Court proceedings do not affect the defendants' placements of investor funds, the Court necessarily must believe that defendants retain control over the investor funds.
Furthermore, in the contracts entered into between the investors and the defendants, defendants Nash and Finegan promised to manage investments for the investors or to place the investments into the marketplace for liquidation. Bankers Alliance Investment Contract, Carolan Decl., Ex. 6 at 2; see also Meshulam Decl. at P 6(a) and Ex. 2. In order to manage the investments, the defendants had to retain control over the investments. The contracts also stated that Bankers Alliance, Mr. Nash or Mr. Finegan either would engage in currency transactions or secure a letter of credit for those funds. Carolan Decl., Ex. 6 at 2; Meshulam Decl., Ex. 2 at 2. The Joint Accounting indicates that the defendants engaged in no currency transactions. Joint Accounting at 12. The investor funds therefore should be available in letters of credit that could be liquidated by Bankers Alliance, Mr. Nash or Mr. Finegan. In that case, investor funds could be repatriated to the United States.
Defendant Lee stated in his declaration that $ 3.725 million in investor funds were transferred from the United States to two Citibank accounts located in Singapore. lee Decl. at P 7. Lee was a cosignatory on one of these accounts and Higley was a cosignatory on both accounts. Joint Accounting at 3. According to the defendants, none of the investor funds were used in currency transactions or other transactions nor were the funds leveraged in any other manner. Joint Accounting at 12. The record therefore shows that the defendants received $ 3.725 million of investor funds and that these funds were transferred from accounts in the United States to accounts in Singapore that were under the control of some or all of the defendants. Because no evidence has been offered that the funds were transferred from the accounts, and in the absence of any evidence of impossibility, the Court may infer that the defendants have the wherewithal to repatriate the funds.
Even if funds were transferred from the accounts, the Court may infer from the invocation of the Fifth Amendment by Messrs. Higley and Finegan that they know the location and disposition of any funds that have been transferred from the accounts. Baxter v. Palmigiano, 425 U.S. 308, 318, 47 L. Ed. 2d 810, 96 S. Ct. 1551 (1976). From the evidence discussed above, the Court may also infer that they have control of those funds. The SEC offered probative evidence that Messrs. Higley and Finegan knew of the locations of investor funds and the disposition of the funds at the time the Joint Accounting was filed. See Joint Accounting at 3 (identifying Steven Higley as a cosignatory for the accounts of Lee Coy Traders); Rumack Dep. at 149-52 (stating that currency trading was to occur out of the Lee Coy Traders accounts); Kendall Dep. at 35, 43 (stating that John Finegan said he would set up the trading account and would conduct the trading). The Court therefore may consider the invocation of the privilege by defendants Higley and Finegan as an additional factor indicating that they know where the funds are located and have the ability to repatriate them. Baxter v. Palmigiano, 425 U.S. at 316-20; see also Lefkowitz v. Cunningham, 431 U.S. 801, 808 n.5, 53 L. Ed. 2d 1, 97 S. Ct. 2132 (1977); Aradia Women's Health Center v. Operation Rescue, 929 F.2d 530, 532 (9th Cir. 1991); SEC v. International Loan Network, Inc., 770 F. Supp. 678, 695-96 (D.D.C. 1991).
As noted, the carefully worded declarations of Messrs. Lee and Nash, as well as the fact that the investors were told prior to issuance of the TRO that they would receive statements of their accounts as of April 1, 1995, Carolan Decl. at P 36, suggest that the Bankers Alliance defendants had control of investor funds and information about their location prior to entry of the TRO and that they took certain actions thereafter to distance themselves from the funds. If that is the case, they both violated the TRO -- an act of contempt in itself -- and acted in bad faith when they agreed to the Preliminary Injunction. The clear inference from the record is that these defendants jointly possess the requisite control and simply have refused to comply with this Court's Preliminary Injunction.
As for the issue of impossibility, once the SEC established by clear and convincing evidence that the defendants failed to comply with the specific court Order to repatriate investor funds, as it has, the burden shifted to the defendants to make a categorical, detailed showing of the impossibility of complying with the Preliminary Injunction. SEC v. Current Financial Services Inc., 798 F. Supp. at 808; see Tinsley v. Mitchell, 804 F.2d at 1256. The burden is on them to provide evidence of their "present inability to comply with the order in question." United States v. Rylander, 460 U.S. 752, 757, 75 L. Ed. 2d 521, 103 S. Ct. 1548 (1983).
Defendants have failed to make such a showing or to produce any such evidence. They attempt to assert impossibility by stating that the funds now are in the possession of certain unidentified "foreign controlled joint ventures," over which defendants presumably can exert no control. Defendants have offered no credible evidence that such joint ventures actually exist, that the funds are indeed located with such joint ventures or that they do not have control over investor funds, whether they reside with the joint ventures or not. The defendants are grounding their claimed lack of control, and thus their claim of impossibility, on information -- the location of the funds with certain joint ventures -- that they have refused to disclose to the Court.
Defendants Lee and Nash have offered incredible explanations regarding their lack of knowledge, while defendants Higley and Finegan have remained silent, thus entirely avoiding their burden of production on the issue of impossibility. See United States v. Rylander, 460 U.S. at 755-58. The Court will not permit the Bankers Alliance defendants to base their impossibility claim upon their refusal to comply with the Court's Order directing them to disclose, before the date of repatriation, the location of the investor funds. The defendants have failed to meet their burden of production on their impossibility defense. Id.
Finally, the Court will not accept the $ 5 million Certificate of Deposit as compliance with the Court's Order to repatriate investor funds. The CD does not mature until November 1, 1995. It is drawn on a bank of the Peoples Republic of China, is assigned from Dennis Chua Teck Gee to Lee Coy Traders, neither of whom are defendants in this action, and is assigned from lee Coy Traders to defendant Steven Higley. See Copy of Certificate of Time Deposit and Assignments, Defendants' Exhibit No. 5 at Contempt Hearing. The Court's having physical possession of the CD provides no assurance that it can be redeemed on November 1, 1995. For the CD to have any value in November 1995, and to be reduced to funds then, requires the cooperation of Mr. Higley, a defendant who is outside the United States. Neither the SEC nor the Court can be assured that such cooperation will be forthcoming in view of Mr. Higley's responses to his obligations to date Furthermore, the defendants have provided no proof that the CD has any value whatsoever, let alone a value of at least $ 3.725 million. The defendants ask the SEC and this Court to accept the CD as compliance with the Preliminary Injunction based on the good faith of defendants. They have given the Court and the SEC no good reason to do so.
For the foregoing reasons, the Court holds each of the Bankers Alliance defendants in civil contempt. They are directed to comply with the provisions of this Court's Preliminary Injunction that they have violated, Sections VII.(d) and VIII, within ten days from the date of this Order. Their failure to do so will result in warrants being issued for the arrest of the individual defendants and of fines being imposed on all of the Bankers Alliance defendants -- $ 25,000 a day for the first five days of their failure to comply, $ 50,000 a day for the next five days, $ 75,000 a day for the next five days, and $ 100,000 a day for each day thereafter -- until they purge themselves of their contempt. An Order of Civil Contempt will be issued this same day.
PAUL L. FRIEDMAN
United States District Judge
ORDER HOLDING DEFENDANTS BANKERS ALLIANCE CORP., LEE FINANCIAL GROUP LTD., L.F.S. LEE FINANCIAL SERVICES,B.A. HOLDING CO., ROY LEE, STEVEN HIGLEY, ALLAN NASHAND JOHN FINEGAN IN CIVIL CONTEMPT, IMPOSING SANCTIONS,AND RESCINDING RELIEF FROM THE ASSET FREEZE
This matter is before the Court on the application of Plaintiff Securities and Exchange Commission for an order holding Defendants Bankers Alliance Corp., Lee Financial Group, Ltd., L.F.S. Lee Financial Services, B.A. Holding Co., Roy Lee, Steven Higley, Allan Nash and John Finegan in civil contempt for their violations of the Court's Preliminary Injunction order regarding: (1) the repatriation of assets to the United States; and (2) the submission of a sworn accounting of the location and disposition of funds raised from investors, and rescinding relief from an asset freeze.
The Court has considered the Commission's Application, supporting Memorandum of Points and Authorities, Opposition of the Bankers Alliance Defendants to the Application, Commission's Reply in Further Support of Order to Show Cause, Response of Bankers Alliance Defendants to Order to Show Cause, Commission's Reply to Bankers Alliance Defendants' Response to Order to Show Cause, Post-Hearing Memorandum of the Bankers Alliance Defendants, Commission's Reply to the Bankers Alliance Defendants' Post-Hearing Memorandum, Declaration of Howard T. Carolan, Jr., Declarations of Jonathan I. Golomb, Declaration of Deborah R. Meshulam, the arguments upon the application and the evidence introduced at the hearing on March 29, 1995.
WHEREAS, it appears from the above-described materials that:
1. Defendants Bankers Alliance Corp., Lee Financial Group, Ltd., L.F.S. Lee Financial Services, B.A. Holding Co., Roy Lee, Steven Higley, Allan Nash and John Finegan have failed to comply with the Order of this Court dated March 13, 1995, the entry and terms of which were consented to by them, requiring them to repatriate investor funds, estimated by them at $ 3.725 million, into the registry of this Court, and have further failed to comply with the provision of that Order requiring them to account for, inter alia the location and disposition of funds raised from investors.
2. Defendants have failed to demonstrate an inability to comply with the Order.
WHEREFORE, the Court is satisfied that the Commission has made a sufficient and proper showing in support of the relief granted herein, pursuant to 18 U.S.C. § 401.
It is hereby ORDERED that Bankers Alliance Corp., Lee Financial Group, Ltd., L.F.S. Lee Financial Services, B.A. Holding Co., Roy Lee, Steven Higley, Allan Nash and John Finegan are in civil contempt of the orders of this Court contained in the Preliminary Injunction regarding: (1) the repatriation of assets to the United States; and (2) the submission of a sworn accounting of the disposition of funds raised from investors.
It is FURTHER ORDERED that Bankers Alliance Corp., Lee Financial Group, Ltd., L.F.S. Lee Financial Services, B.A. Holding Co., Roy Lee, Steven Higley, Allan Nash and John Finegan shall comply fully with the requirements of Sections VII and VIII of the Preliminary Injunction entered against them on March 13, 1995, no later than 5:00 p.m. Eastern Daylight Time on April 17, 1995.
It is FURTHER ORDERED that, if the requirements of Section II of this Order are not complied with by the time set forth therein:
(a) a warrant be issued for the arrest of Defendants Roy Lee, Steven Higley, Allan Nash and John Finegan by reason of their contempt. They shall remain confined until such time as the contempt is purged, that is, until such time as they effect a repatriation of funds raised from investors and provide a complete accounting of the disposition of such funds, and otherwise comply fully with all other provisions of Section VII and VIII of this Court's March 13, 1995, Order; and
(b) Defendants Bankers Alliance Corp., Lee Financial Group, Ltd., L.F.S. Lee Financial Services, B.A. Holding Co., Roy Lee, Steven Higley, Allan Nash and John Finegan shall pay a fine of $ 25,000 per day for the first five days they fail to comply after the time set forth in Section II, $ 50,000 per day for the next five days, $ 75,000 per day for the next five days, and $ 100,000 per day until such time as the contempt is purged or until further order of the Court.