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SEC v. UNITED COMMUNS.

September 12, 1995

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
UNITED COMMUNICATIONS, LTD., et al., Defendants.


James Robertson, United States District Judge


The opinion of the court was delivered by: ROBERTSON

On April 21, 1995, upon the consent and certain undertakings of defendants United Communications, Parker, Palmarez, Vargas, U.E.G., UCL-CC, and Omnivision of Dayton, I issued an order for permanent injunction and other equitable relief in this complex SEC enforcement action. That order provided, inter alia, that defendants United Communications, Parker and Palmarez would pay to a disgorgement fund, for the benefit of investors, such amounts as would be determined by agreement of the parties within 90 days.

 No such agreement has been filed. Instead, the parties are struggling over the $ 675,855 proceeds of defendant Omnivision's sale, in May and June 1995, of the stock of a company called Cablemaxx. On June 29, 1995 the SEC filed an emergency motion to prohibit expenditures that would dissipate the proceeds of that sale. I authorized a number of specific payments totaling $ 243,000 and ordered the rest of the proceeds frozen. *fn1"

 Now before me are defendants' request to vacate the June 29 asset freeze order (or in the alternative to permit certain payments from the frozen funds) [#73] and the SEC's motion to supplement the freeze order by requiring that defendants return certain of the Cablemaxx sale proceeds they spent without giving advance notice to the SEC [#69].

 The freeze order was issued on an emergency basis and should be continued in effect only if the SEC has established that the proceeds of the Cablemaxx stock sale are, in effect, the same funds that were unlawfully obtained from investors. Accordingly, I turn first to that issue.

 A. Traceability of proceeds from the sale of Cablemaxx stock

 The SEC asserts that the cash proceeds from the sale of Cablemaxx shares are traceable to investor funds acquired through a fraudulent telemarketing scheme in violation of federal securities laws. Although the unlawful acts have yet to be proven, the SEC appears to be correct as to traceability.

 Thereafter, United Communications did form a limited liability company, UCL-CC, and did pay Technivision $ 3 million, generated from the sale of interests in either UCL-CC, or other limited liability companies. Upon payment of the $ 3 million, United Communications' option rights under the master agreement became exclusive, vested, and nonrevocable for a period of three years. Master Agreement PP 3.4, 7.3. In late 1993, United Communications assigned its option on the Salt Lake City system to Omnivision, Inc. Thereafter, in June 1994, Technivision and Omnivision sold their respective interests in the Salt Lake City system to Cablemaxx. As part of the sale, Cablemaxx made payment to Omnivision over an eight month period in cash and restricted stock. In May and June 1995, Omnivision sold its Cablemaxx shares and received the cash proceeds that are subject of the present dispute.

 The United defendants assert that they spent none of the money raised from limited liability company investors to acquire or exercise the Salt Lake City option. They suggest that United Communications' promise to pay $ 3 million under the master agreement was consideration, not for the option on the Salt Lake City system, but solely for its interest in the Corpus Christi system. This argument is refuted by the master agreement, which provides in relevant part that:

 
the total purchase price payable by UCL, as nominee for the LLC, to [Technivision] for the Corpus Christi System/Market and for the Options2 ("Corpus Christi Purchase Price and Options Payment") shall be the sum of Three Million Dollars . . . .

 Master Agreement P 3.1 (emphasis added). The agreement provides further that "the Parties acknowledge that the source of payment of the Corpus Christi purchase Price and Option Payment, exclusive of certain initial monies, if any, shall be from the LLC." Id. P 3.3 (emphasis added). Thus on the face of the master agreement, it is apparent that the payment of $ 3 million purchased both a joint venture interest in the Corpus Christi system and the Salt Lake City option. No record evidence is to the contrary.

 The United defendants go on to point out that United Communications or its successor in interest, Omnivision, could have exercised the option on the Salt Lake City system only upon payment of an additional $ 3.5 million. But, obviously, it was not necessary to spend additional monies to sell the option. What United Communications, and later Omnivision, held was enforceable and evidently valuable option rights purchased with investor funds. Omnivision sold those rights to Cablemaxx and received the Cablemaxx shares in return. That chain of events ties the proceeds from Omnivision's sale of Cablemaxx shares to investor funds, at least ...


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