Free Motion to Amend/Correct/Modify - District Court of Colorado - Colorado

Case 1:01-cv-01340-MSK-PAC

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Filed 08/25/2005

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-MK-1340 (PAC) SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. WILLIAM L. BROTHERTON, AND INTERNATIONAL BUSINESS CONSORTIUM, INC., Defendants.

MOTION FOR ORDER MODIFYING ASSET FREEZE AND DIRECTING PAYMENT OF CERTAIN FROZEN FUNDS TO THE COURT'S REGISTRY

I. PRELIMINARY STATEMENT Plaintiff Securities and Exchange Commission ("Commission") hereby moves for an order modifying the asset freeze in paragraph IV of this Court's Order of July 24, 2001 with respect to $10,000 that Birge & Minckley, P.C., former counsel for Defendant William L. Brotherton, received from Brotherton as a retainer before this case was filed on July13, 2001. The funds are on deposit in the firm's client trust account and are currently subject to the asset freeze. The Commission seeks an order: (1) directing Birge & Minckley, pursuant to Local Civil Rule 67.2, to transfer $3,634 from the trust account to the Clerk of the Court for deposit into the registry in an interest bearing account with the Court Registry Investment System

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("CRIS") in partial satisfaction of the Court's June 16, 2003 judgment for disgorgement in favor of the Commission and against Brotherton and International Business Consortium, Inc. ("IBC"); and (2) lifting the asset freeze with respect to the remainder in the trust account, $6,366, so that Birge & Minckley may transfer that amount to the firm's own account for legal services rendered by the firm to Brotherton in connection with the Commission's investigation before this case was filed on July 13, 2001. Birge & Minckley has told the Commission that the firm does not oppose this motion. II. PROCEDURAL HISTORY A. Background The Commission commenced this action on July 13, 2001 by filing a complaint together with an application for a preliminary injunction, a temporary restraining order, an order freezing the Defendants' assets, and other emergency relief (Docket Entry ("DE") 1). The complaint alleged that the Defendants raised over $300,000 from at least 180 investors by making material misrepresentations in an unregistered $20 million offering of IBC securities, in violation of the registration and antifraud provisions of the federal securities laws. On July 24, 2001 a preliminary injunction and asset freeze was entered with the Defendants' consent (DE 12). Among other things, the asset freeze enjoined the Defendants from disposing of any of their assets and directed persons holding any of the Defendants' funds to retain them and not permit their withdrawal. Birge & Minckley represented Brotherton during the Commission's investigation and the early months of this case. In connection with the representation, the firm received $12,088 from Brotherton as a retainer before this case was filed on July 13, 2001 and deposited that sum in its

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client trust account. The firm's billing records show fees and expenses in the total amount of $12,778.64, including $6,366 for legal services rendered before this case was filed. On May 7, 2002, at a Rule 16 conference, the court granted a motion for Thomas D. Birge to withdraw as counsel for the Defendants but at that time the Court denied counsel's request for payment of attorney's fees from the firm's trust account (DE 49). The courtroom minutes (DE 49) and the reporter's transcript (DE 58) of the conference indicate that the Court permitted Birge & Minckley to withdraw $2,088 from the trust account for certain expenses incurred by the firm before the Commission's case was filed, but directed that the remaining $10,000 in the trust account would remain subject to the asset freeze, pending further order of the Court. The Court subsequently found that the Defendants violated the securities laws as alleged in the Complaint. By Orders filed March 3 and 4, 2003 the Court granted the Commission's motion for default judgment against IBC (DE 94) and granted in part and denied in part the Commission's motion for summary judgment against Brotherton (DE 95). On July 17, 2003 the Court ordered, among other things, that the Defendants jointly and severally disgorge ill-gotten gains of $325,144, plus prejudgment interest of $36,602.03, and pay civil money penalties of $50,000 (DE 108). Thereafter, the Court filed an Order on January 22, 2004 granting a motion by the Commission and directing the transfer to the registry of certain funds subject to the freeze order that were then on deposit in certain bank accounts, in partial satisfaction of the Defendants' judgment liability for disgorgement (DE 110). Pursuant to that Order, a total of $174,522.65 was transferred to the Court's registry (DE 111 and 112).

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On March 17, 2005 the Commission filed with the Court a proposed Plan of Distribution (DE 113), and on March 18, 2005 the Court filed an order directing interested parties to show cause why the proposed Plan should not be approved (DE 114). The Commission received one objection to the Plan, which the Commission filed with the Court on June 10, 2005 with the Commission's response requesting the Court to overrule the objection and approve the proposed Plan (DE 116). The Commission's request for the Court's approval of the proposed Plan remains pending with the Court. B. Recent Developments Recently, Birge & Minckley notified the Commission of its intention to renew its request for payment of legal fees from the funds remaining in the firm's trust account. Subsequent discussion between the firm and the Commission resulted in agreement for disposition of the funds in the firm's client trust account that are subject to the asset freeze as proposed in this motion, upon approval by the Court. III. DISCUSSION The purpose of an asset freeze order like the one entered in this case is to prevent the dissipation of assets that would be collected by the Commission resulting from an enforcement action. SEC v. Unifund SAL, 910 F.2d 1028, 1042 (2nd Cir. 1990), citing United States v. First National City Bank, 379 U.S. 378, 385 (1965) (preliminary injunction preventing dissipation of assets to secure Internal Revenue Service jeopardy assessment); De Beers Consolidated Mines, Ltd. v. United States, 325 U.S. 212, 220 (1945) (indicating approval of freeze order to protect availability of relief "of the same character as that which may be granted finally"). A freeze order may even be expansive enough to cover a defendants' total potential liability, including the

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maximum civil penalty that could be imposed in a Commission action. See Unifund SAL, 910 F.2d at 1041-42 (order freezing an amount greater that the total amount to be disgorged is acceptable so long as it is only large enough to cover the maximum civil penalty that could be imposed in addition to full disgorgement). Here, the funds contained in the Birge & Minckley trust account were assets subject to the freeze order. Like the frozen funds in the bank accounts whose transfer to the registry the Court previously ordered, the funds in the trust account could be applied in partial satisfaction of the judgment debt. See SEC v. Chemical Trust, 2000 WL 33231600, at 12-13 (S.D. Fla. 2000) (Ordering the transfer of frozen funds to court's registry to satisfy judgment and for benefit of defrauded investors). The firm, however, has a claim with respect to funds in the trust account. See Colorado Revised Statutes § 12-5-119. The relief proposed in this motion avoids unnecessary litigation regarding this matter. It is also consistent with the Court's ruling at the Rule 16 conference on May 7, 2002, when the Court permitted Birge & Minckley to reimburse itself from the trust account for expenses incurred in connection with representing Brotherton before this case was filed. If the court grants this motion, the firm will be paid for the legal services it provided to Defendants before the case was filed in the amount of $6,366. The balance of $3,634 will be transferred to the registry for ultimate distribution to the defrauded investors pursuant to the proposed Plan, upon approval of the proposed Plan by the Court. IV. CONCLUSION For the foregoing reasons, the Commission respectfully requests the Court to grant this motion for an order: (1) directing Birge & Minckley, pursuant to Local Civil Rule 67.2, to

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transfer $3,634 from the trust account to the Clerk of the Court for deposit into the registry in an interest bearing account with the CRIS in partial satisfaction of the Court's June 16, 2003 judgment for disgorgement in favor of the Commission and against the Defendants; and (2) lifting the asset freeze with respect to the remainder in the trust account, $6,366, so that Birge & Minckley may transfer that amount to the firm's own account for legal services rendered by the firm to Brotherton in connection with the Commission's investigation before this case was filed on July 13, 2001.

Dated: August 25, 2005 Respectfully submitted, s/ Robert J. Keyes___ Robert J. Keyes Attorney for Plaintiff Securities and Exchange Commission 3 World Financial Center New York, New York 10281 Telephone: (212) 336-0109 FAX: (212) 336-1322 E-mail: [email protected]

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