Free Motion to Lift Stay - District Court of Arizona - Arizona

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MOLLY M. WHITE, Cal. Bar No. 171448 E-mail: [email protected] JOHN B. BULGOZDY, Cal. Bar No. 219897 E-mail: [email protected] Attorneys for Plaintiff Securities and Exchange Commission Randall R. Lee, Regional Director Michele Wein Layne, Associate Regional Director 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036 Telephone: (323) 965-3998 Facsimile: (323) 965-3908 UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. SECURITY TRUST COMPANY, N.A., et al., Defendants. Pursuant to Local Civil Rule 83.3 (e), Plaintiff Securities and Exchange Commission ("Commission") applies ex parte for an order lifting the previously imposed stay of the final distribution of funds. On April 11, 2006, the Court issued an order directing the Court Registry to disburse funds to pay taxes, the tax administrator's fees, and to distribute the remainder of funds in accordance with the Court's December 16, 2005 Order. In May 2006, the remaining parties to the litigation had reached agreement in principal on the terms of settlement. Because the Commission believed settlement with all three remaining defendants was likely, and in order to avoid multiple distributions, the Commission applied for an order staying the final distribution of funds until at least July 28, 2006. On June 6, 2006, the Court granted the stay. Since the Court granted the stay, the Commission has settled with two of the
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Case No. CV-03-2323-PHX-JWS EX PARTE APPLICATION FOR AN ORDER LIFTING STAY OF DISBURSEMENT OF FUNDS

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remaining three defendants ­ William Kenyon and Nicole McDermott. Ultimately, the Commission was unable to settle with Defendant Grant Seeger. Because the Commission was unable to settle with all three defendants, the Commission no longer believes it is prudent to delay distribution of the funds. Pursuant to Local Civil Rule 77.4(a), on October 2, 2006, and on October 4, 2006, Commission counsel contacted counsel for Security Trust Company, for Grant D. Seeger, for William A. Kenyon, and for Nicole McDermott, in order to communicate the substance of this ex parte application. Counsel for Grant D. Seeger and counsel for Nicole McDermott indicated that they will not oppose this application. Counsel for Security Trust Company and counsel for William A. Kenyon did not respond to the Commission's message regarding this Ex Parte Application. The Commission applies for this relief on an ex parte basis. This Application is based on the concurrently filed Memorandum of Points and Authorities, the Declaration of Molly White, and any other evidence and argument that the Court permits.

DATED: October 5, 2006

/s/ Molly M. White MOLLY M. WHITE JOHN B. BULGOZDY Attorneys for Plaintiff Securities and Exchange Commission

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MEMORANDUM OF POINTS AND AUTHORITIES The Commission filed this action on November 25, 2003. On March 31, 2004, defendant Security Trust Company ("STC") consented the entry of a final judgment requiring STC to disgorge and pay prejudgment interest totaling $1 million. STC paid the money to the Clerk of the Court, which deposited the funds into an interestbearing account (the "Distribution Fund") with the Court Registry Investment System pending further order of the Court. On August 30, 2004, defendants Grant D. Seeger and William A. Kenyon entered guilty pleas in the criminal action brought against them by the New York State Attorney General. In connection with their sentencing, Seeger and Kenyon each paid restitution of $50,000. On November 29, 2005, the Commission filed a motion for entry of an order (1) permitting that the $100,000 in restitution paid by Seeger and Kenyon be deposited into the Court's registry account for inclusion in the Distribution Fund; (2) approving the Commission's proposed plan for distribution of the Distribution Fund on a pro rata basis to a group of the mutual funds that were improperly traded as alleged in the Complaint; (3) appointing Damasco & Associates ("Damasco") as the Tax Administrator for the Distribution Fund; and (4) authorizing Damasco to be paid its fees from the Distribution Fund. On December 16, 2005, the Court granted the Commission's motion. On February 15, 2006, the Court issued an order stating that "there can be no disbursement from the Distribution Fund until the Tax Administrator completes its work and advises the Court of the taxes and fees to be paid." On April 3, 2006, the Commission filed a motion to disburse funds from the Distribution Fund to pay taxes and the tax administrator. Because Damasco had completed its work, the Commission asked the Court to direct that the remaining funds in the Distribution Fund be distributed in accordance with the Court's December 16, 2005 order. On April 11, 2006, the Court ordered that the court registry disburse checks to Damasco for payment of taxes and the tax administrator fees. The Court also ordered that the "remainder of the funds in the Court's
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registry account in this action . . . be distributed forthwith, but in no event later than June 1, 2006, in accordance with paragraph 5 of this Court's December 16, 2005 Order." (April 11, 2006 Order ¶ 4, Docket No. 66.) By late May 2006, the Commission staff believed it had reached settlement in principal with the remaining three defendants in this action ­ William Kenyon, Nicole McDermott, and Grant Seeger. (May 25, 2005 Declaration of Jessica Rigley Marren ("Marren Dec.") ¶ 2, Docket No. 71.) Ultimately, however, the Commission was only able to reach settlement with two of those defendants ­ William Kenyon and Nicole McDermott. The Commission has approved the terms of the settlements, and Commission counsel expects to soon file papers with the Court effecting the settlements. (Declaration of Molly M. White Supporting Ex Parte Application for an Order Lifting Stay ("White Dec.") ¶ 2.) Although the Commission continued to discuss settlement with Mr. Seeger and his counsel, on September 18, 2006, Commission counsel learned that Mr. Seeger was not willing to resolve the action along the lines that the parties had been discussing. (White Dec. ¶ 3.) The Commission will therefore move forward with the litigation against Defendant Seeger. Because the Commission was not able to settle the case with Seeger, because McDermott is not paying a penalty, and because Kenyon cannot pay the judgment in full for another year, the Commission does not believe it is prudent to continue to delay distribution of the fund. The Commission, therefore, respectfully requests that the Court lift the June 6, 2006 stay of the portion of its April 11, 2006 order, and order the distribution of the remainder of the funds in the Distribution Fund in accordance with paragraph 5 of the December 16, 2005 order. DATED: October 5, 2006 /s/ Molly M. White MOLLY M. WHITE JOHN B. BULGOZDY Attorneys for Plaintiff Securities and Exchange Commission
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Case 2:03-cv-02323-JWS

PROOF OF SERVICE I am over the age of 18 years and not a party to this action. My business address is: [X] U.S. SECURITIES AND EXCHANGE COMMISSION, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036. Telephone: (323) 965-3998 Fax: (323) 965-3908 On October 5, 2006, I served the document entitled EX PARTE APPLICATION FOR AN ORDER LIFTING STAY OF DISBURSEMENT OF FUNDS upon the parties to this action addressed as stated on the attached service list: [X] OFFICE MAIL: By placing in sealed envelope(s), which I placed for collection and mailing today following ordinary business practices. I am readily familiar with this agency's practice for collection and processing of correspondence for mailing; such correspondence would be deposited with the U.S. Postal Service on the same day in the ordinary course of business. [ ] PERSONAL DEPOSIT IN MAIL: By placing in sealed envelope(s), which I personally deposited with the U.S. Postal Service. Each such envelope was deposited with the U.S. Postal Service at Los Angeles, California, with first class postage thereon fully prepaid. EXPRESS U.S. MAIL: Each such envelope was deposited in a facility regularly maintained at the U.S. Postal Service for receipt of Express Mail at Los Angeles, California, with Express Mail postage paid.

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PERSONAL SERVICE: I caused to be personally delivered each such envelope by hand to the office of the addressee. FEDERAL EXPRESS: By placing in sealed envelope(s) designated by Federal Express with delivery fees paid or provided for, which I deposited in a facility regularly maintained by Federal Express or delivered to a Federal Express courier, at Los Angeles, California. FAX (BY AGREEMENT ONLY): By transmitting the document by facsimile transmission. The transmission was reported as complete and without error. ELECTRONIC MAIL: By transmitting the document by electronic mail to the electronic mail address as stated on the attached service list. (Federal) I declare that I am employed in the office of a member of the bar of this Court, at whose direction the service was made. I declare under penalty of perjury that the foregoing is true and correct. /s/ Magnolia M. Marcelo MAGNOLIA M. MARCELO

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Date: October 5, 2006

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SEC v. Security Trust Company, et al. United States District Court - District of Arizona Case No. CV 03-2323 PHX JWS (LA-2781) SERVICE LIST Jess A. Lorona, Esq. Dodge, Anderson, Mableson, Steiner, Jones, & Horowitz, Ltd. 3003 North Central Avenue, Suite 1800 Phoenix, AZ 85012 Email: [email protected] Attorney for Defendant Grant D. Seeger Henry Mazurek, Esq. Law Offices of Gerald L. Shargel 570 Lexington Avenue, 16th Floor New York, NY 10022 Email: [email protected] Attorney for Defendant William Kenyon William M. Brodsky, Esq. Fox Horan & Camerini LLP 825 Third Avenue, 11th Floor New York, NY 10022 Email: [email protected] Attorney for Defendant Nicole McDermott

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