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SECURITIES AND EXCHANGE COMMISSION v. HOMA

March 31, 2004.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
CHARLES RICHARD HOMA; SUNSET FINANCIAL SERVICES, LLC, C4T MANAGEMENT, INC., T/P FUNDING SERVICES, INC., MICHAEL GAUSE, BILL J. SHORT, II, JIMMY B. ROOF, ROBERT C. ELLENBURG, STEVEN SHANE NICHOLS, CHARLES EDWARD DICKERSON, PHILIP A. SHARPTON, BILCIN ENTERPRISES, INC., JIMMY B. ROOF, LLC, R. ELLENBURG, LLC, R & E ASSOCIATES LTD. D/B/A/ ROOF & ELLENBURG, LLC, SAFEHARBOR ADVISORS, INC., PAS, INC., PAS HOLDINGS, INC., VOLUNTEER ENTERPRISES, LTD., GULFCOAST HOLDINGS, LLC, R & E LTD. D/B/A/ JB ROOF & ASSOCIATES, LLC, J & R FINANCIAL SERVICES, LTD., J. ROOF & R ELLENBURG, LLC, BELLWETHER HOLDINGS, LLC, SOUTHWESTERN HOLDINGS, LLC, TITLE HOLDINGS, LLC, D. DEAN PEARSON, JOHN TELFORD SNIPES, JOHN MARTIN CAELSON, JOSEPH FREDERICK DENSON, JR., CARLSON NATIONAL BROKERS, LTD., GLOBAL MANAGEMENT ENTERPRISES, LLC, PREFERRED RETURNS, INC., JTP, INC., TRADEWINDS HOLDINGS, LLC, PEAK HOLDINGS, LLC, HARBOR HOLDINGS, LLC, PEARSON ENTERPRISES TRUST, PARAMOUNT HOLDINGS, LLC, PREMIERE HOLDINGS, LTD., ROLLS ROYCE, LTD., and MORNINGSTAR, LTD. Defendants, and LINDY L. GAUSE, LINDA L. NICHOLS AND NICHOLS AND ASSOCIATES, Relief Defendants



The opinion of the court was delivered by: RONALD GUZMAN, District Judge Page 2

MEMORANDUM OPINION AND ORDER

The Securities and Exchange Commission ("SEC") brought this action against Charles Richard Homa and other defendants as a result of their involvement in one of the largest Ponzi schemes in U.S. history. In furtherance of the scheme, Homa needed the cooperation of off-shore banks and individuals. Paul M. Jones ("Jones") and David A. Pollock ("Pollock") approached Homa to provide start-up capital for Banc Caribe, which he did, and subsequently tens of millions of dollars produced by the scheme were deposited in Banc Caribe. To ensure that the ill-gotten gains of defendants were not dissipated before bilked investors could present their claims, the Court entered an "Order Preserving Funds and Other Assets and Identifying Assets" ("Freeze Order"). After the Freeze Order was received by Banc Caribe and Homa, Jones, Banc Caribe's President and CEO, and Pollock, Banc Caribe's Managing Director and CFO, transferred funds to another bank in Greece and sold all Banc Caribe stock. Before the Court are the following motions: (1) Banc Caribe's Liquidator's motion to dismiss for lack of subject matter jurisdiction and personal jurisdiction; (2) Pollock and Jones' motion to vacate the freeze order; and (3) Receiver Phillip S. Stenger's motion for rule to show cause why Pollock and Jones should not be held in contempt of court for violating the Freeze Order. For the reasons provided in this Memorandum Opinion and Order, the Court denies the motions of Banc Caribe's Liquidator, Pollock and Jones and grants the motion of the Receiver. Page 3

FACTS

  The following facts are not disputed and supported by the record.*fn1 From at least 1995 through October 1999, when he was arrested by the FBI and sued civilly by the SEC, Homa and Michael E. Gause created and operated a Ponzi scheme, which involved a variety of businesses purportedly associated with an automobile title lending business titled "Cash 4 Titles" or "C4T." (Mot. Show Cause ¶ 1.) The scheme swindled innocent investors of more than $165,000,000. (Id.)

  In April 1998, Pollock and Jones, who are two U.S. citizens residing in Florida, offered Homa the chance to invest in a bank they were attempting to finance in the Commonwealth of Dominica. (Id. ¶ 7.) On June 5, 1998, Homa, via his company Sunset Financial Services, LLC, wire transferred $500,000 to the account of Caribbean Ventures International, Ltd., at the Commercial Bank of Dominica, which, on information and belief, was used to capitalize Banc Caribe. (Id. ¶ 8.) Seven days after Homa sent the money, Pollock and Jones filed the articles of incorporation for Banc Caribe. (Id. ¶ 9.) Upon information and belief, Banc Caribe was funded with the minimum capital allowed under the law of Dominica, $1 million, and accordingly, Homa owned at least 50% of the bank. (Id)

  In September 1988, Banc Caribe began doing business, (Id. ¶ 10.) Homa was Banc Caribe's Chairman of the Board of Directors, Jones was President, and Pollock was Managing Director. (Id.)

  Until October 1999, when the SEC action was filed, at least $67,321,000 of Cash 4 Titles investor funds were deposited into accounts at Banc Caribe. (Id. ¶ 11.) At the same time, $58,549,580.12 was withdrawn from Banc Caribe by Cash 4 Titles entities. (Id.) Thus, prior to the Page 4 filing of the SEC action, Banc Caribe owed Cash 4 Titles entities $8,771,419.88. (Id.)

  Around August 1999, Robert Ellenberg and Jimmy Roof, who are two Cash 4 Titles marketers and defendants in the SEC action, raised $5,355,000 from investors. (Id. ¶ 12.) On August 18, 1999, those funds were deposited into Banc Caribe's account at Dain Rauscher Inc. for the benefit of T/P Funding Services, Inc., a Cash 4 Titles entity. (Id.) The next day, Dain Rauscher transferred $2,000,000 to the account of Banc Caribe at Paine Webber, Inc. (Id.) Homa and Cash 4 Titles are liable for all of the debt associated with this revenue. (Id.)

  On October 15, 1999, the SEC brought a civil action against defendants in the U.S. District Court for the Southern District of New York. Judge David N. Edelstein entered the "Order Preserving Funds and Other Assets and Identifying Assets," which froze assets of the Defendants. (Id. ¶ 13.) It stated, in pertinent part:
Defendants . . . preserve all funds and other assets and Defendants, their officers, agents, servants, employees, attorneys and those persons in active concert or participation with defendants, including but not limited to GMD Aviation, Inc. and Banc Caribe, Ltd., who receive actual notice of the Order, by personal service or otherwise, are prohibited, directly or indirectly, in transferring, selling, assigning, encumbering, pledging, dissipating, concealing or otherwise disposing of in any manner, any funds, assets, or other property belonging to, or in the possession custody or control of the Defendants, wherever located.
(Id.) The SEC served a copy of the Freeze Order on Banc Caribe through Homa, its Chairman of the Board of Directors. (Id.)

  On October 19, 1999, the Court issued an "Order to Financial Institutions Freezing Accounts of Defendants." The Order stated "[a]ny account in the name of any Defendant, or in which any Defendant has signatory authority or a beneficial interest, including but not limited to Cash 4 Titles, GMD Aviation, Inc. and Banc Caribe, Ltd., is frozen until further order of the Court." (Mot. Rule Page 5 Show Cause, Ex. K, Order of 10/18/99.)

  On October 18, 1999, Jones, with knowledge and authorization of Pollock, directed that Paine Webber wire transfer $1,975,000 out of the Banc Caribe Paine Webber account to an account established by Pollock and/or Jones in the name of Banc Caribe at Alpha Credit Bank in Athens, Greece. (Mot. Rule Show Cause ¶ 17.) On October 20, 1999, $1,975,000 was transferred as directed. (Id)

  On October 26, 1999, the SEC and Banc Caribe entered into a Stipulation and Order whereby Banc Caribe agreed, in pertinent part, to: (1) transfer the current balance at Banc Caribe's Dain Rauscher account and its current balance at its South Trust Bank into an escrow account entitled the SEC Escrow Account; (2) allow the SEC to withdraw the funds from that escrow account upon determination by the Receiver based on documentation that such funds belonged to a defendant depositor; (3) fully cooperate in taking all lawful steps to repatriate any additional money if the money in the escrow account is insufficient to satisfy all of the balances that all of the defendant-depositors have in Banc Caribe accounts. (Id. ¶ 19.)

  According to an SEC accounting provided to Banc Caribe on November 27, 2002 as required by the Stipulation and Order, it has been calculated that the current amount owed by Banc Caribe is $4,896,916.06 plus accrued interest ("remaining account balance"). (Id. ¶ 23.) Banc Caribe has not objected to the accounting. (Id. ¶ 24.) Banc Caribe has not replied to the Receiver's request that the remaining account balance be repatriated and has not otherwise taken any steps to transfer the money to the Receiver. (Id. ¶ 26.)

  In or about December 2002, Jones and Pollock sold the stock in Banc Caribe, including the beneficial interest of Homa, out of a trust domiciled in Dominica entitled the "Aristocrat Trust," Page 6 which was controlled by Pollock, for $5 million, (Id. ¶ 27.) Upon information and belief, all of the funds from the sale went either directly to Pollock and/or Jones or to entities under the control of Pollock and/or Jones. Although Homa contributed at least half of the capital to form ...


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