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May 12, 2004.

CHARLES RICHARD HOMA, et al., Defendant

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


From at least 1995 through October 1999, until he was arrested by the FBI, prosecuted criminally by the United States Attorney's Office, and civilly sued by the Securities and Exchange Commission ("SEC"), Charles Richard Homa ("Homa"), with the assistance of Michael E. Cause ("Cause"), developed and operated one of the largest Ponzi schemes in United States history, using a variety of businesses supposedly associated with an automobile title lending business called "Cash 4 Titles" or "C4T," In total, the principal sum lost by innocent investors ("Investors") exceeded $165,000,000.

On November 2, 1999, Mr. Phil Stenger was appointed receiver of the assets of Homa, Sunset Financial Services, LLC, C4T Management, Inc., TIP Funding Services, Inc. and the affiliated entities of the foregoing (the "Receivership Property") including the interests of any individuals or entities constituting Receivership Property in Bane Caribe or accounts therein. The Receiver's general mandate is to marshal C4T related assets for the benefit of investors.

  The SEC Action was filed on October 15, 1999, and was originally filed in the Federal District Court, Southern District of New York. The assigned judge, the Honorable David N. Edelstein, entered the "Order Preserving Funds and Other Assets and Identifying Assets" which froze the assets of the Defendants and ordered, in relevant part, that "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 received 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. "("Freeze Order").

  On October 15, 1999, Amy Cotter, an attorney at the SEC, sent via facsimile a copy of the Freeze Order to Sonia Bonaventure at Paine Webber, Inc., and requested that Paine Webber search its records to determine if it held any assets that were covered by the Freeze Order. Subsequently, Jones directed that PaineWebber 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 Bane Caribe at Alpha Credit Bank in Athens, Greece. Before this Court is the SEC's motion for PaineWebber to show cause why it should not be held in contempt of court for aiding Bane Caribe in transferring $1,975,000 out of the Banc Caribe PaineWebber account to the Banc Caribe account at the Alpha Credit Bank in Athens, Greece in violation of the Court's freeze order. On September 22, 2003, an evidentiary hearing was held to determine if Paine Webber should be held in civil contempt for failing to honor the Freeze Order; and why it should not, as a remedy, be ordered to pay the Receiver $1,975,000 that he would otherwise have access to had the Banc Caribe account been frozen by Paine Webber as ordered.

  At the hearing, Scott James Hlavacek testified that he is the Assistant Regional Director for the Securities and Exchange Commission in Chicago. Mr. Hlavacek has an undergraduate degree in history and a masters in business administration with a concentration in finance. He is also a certified public accountant. It was his responsibility to trace funds that were raised by the C4T Ponzi scheme. The C4T scheme was one of the largest ever investigated by the SEC with an estimated $300 million raised from investors. (Hearing at 7.) Based upon the belief that Sunset Financial Services, an organization linked to Defendant Homa, had placed funds with Paine Webber, Hlavacek, in July 1999, sent a subpoena to Paine Webber. The subpoena was directed to Paine Webber's legal department or compliance department. In late July a response was received from Ms. Sonia Bonaventure, a paralegal, in the form of a letter. The response included account statements for one account in the name of Bank Caribe at Paine Webber. The Banc Caribe account was closed. Banc Caribe was known to the SEC investigators as an off shore bank created by defendant Homa to launder Cash 4 Titles funds in the island of Dominica.

  On August 31, 1999 Hlavacek learned that one of the Cash 4 Titles entities, J.B. Roof and R. Ellenberg LLC, deposited $5.3 million of investors' funds in a Banc Caribe account for credit to T/P Funding at Dain Rauscher. (Id. at 11.) Dain Rauscher informed Hlavacek that $2 million of that money was transferred to an account in the name of Banc Caribe for credit to T/P Funding at Paine Webber. In response to this information Hlavacek called Sonia Bonaventure, and "inquired about the status of those funds at Paine Webber." He told Bonaventure that they were trying to trace the funds as part of their investigation. (Id. at 12, 17-18.) He followed up with a fax to Bonaventure containing a copy of the wire transmittal sheet/fax he received from Dain Rauscher which reflected the transfer of the $2 million from Dain Rauscher to PaineWebber.*fn1 Because the response from Paine Webber did not address the particular account or the $2 million, Hlavacek called Bonaventure to inquire about it sometime in late September or early October. According to Hlavacek, Bonaventure declared that the money was not at PaineWebber and she could not determine what had happened to it. (Id at 16-18.)

  On October 15, 1999 the Cash 4 Titles case was filed, and Hlavacek faxed a copy of the asset freeze order to Bonaventure (Ex. H), called to confirm receipt, and inquired again about the $2 million at the Paine Webber account. His phone call was for the purpose of making sure that this order served to freeze the $2 million which he knew at that point had at least gone through Paine Webber and believed might still be there. Bonaventure's response was that they did not have any of the funds and that there were no accounts of Banc Caribe at Paine Webber at that time. (Hearing, at 19.) Hlavacek believes that he told Bonaventure that the $2 million were subject to the freeze order. He also believes, but cannot be sure, that he mentioned that Mr. Homa, one of the defendants, was the chairman of Banc Caribe. He is certain he told her that those funds had been traced from the Ponzi scheme to the particular account at Paine Webber and that was why the freeze order was being served on Paine Webber. (Id. at 58.) After the direct, cross and redirect examinations the Court asked the following question of Hlavacek: "Okay. At any time did you impart any information to her to connect those funds with the defendants in this case?" His answer:
I may have done it in that conversation or the prior conversation, where I explained how the money had flown from the investigation that we were tracing those funds from this investigation from Dain Rauscher to Paine Webber and that they were funds of. . . . That we were tracing them as part of our investigation into this — if 1 did it in September, I wouldn't have said Ponzi scheme because we hadn't filed the case yet. But as part of our investigation, and that these were funds that we wanted to determine where they went because they were part of our investigation. If it was on the 15th, I would have said that they were part of this Ponzi scheme that we were — had filed a case on. I know that I told her it was a $300 million Ponzi scheme that we had filed on the 15th — or on the — yeah, on the 15th, and that these were funds that were traced from that Ponzi scheme. I can't be sure if whether I said on the 15th that they were part of the Ponzi scheme and came from that or whether I told her earlier that they were funds that we were tracing as part of our investigation into this matter."
(Id. at 63-64.) This is Hlavacek's clearest statement on what information he actually stated to Paine Webber regarding the connection between the $2 million he believed Paine Webber was holding and the freeze order in this case. Unfortunately Mr. Hlavacek was not always this clear. For example, when asked on direct examination whether or not in his late September or early October phone conversation with Bonaventure he in any way linked the $2 million dollars to the investigation he was performing he answers: "Just that it was funds we were trying to trace as part of our investigation." (Id. at 17-18.) On cross examination he was asked directly if he had ever told Bonaventure that any defendant in the Homa case owned or controlled any funds in the Banc Caribe account at Paine Webber, he answers: "I believe I told her that we believed that those funds were subject to the freeze. I don't know if I read the language as you just did from the freeze." (Id. at 58.) When asked if he ever told Bonaventure that Banc Caribe was controlled by the defendants he responds: "I think I did at the — on the 15th. I may have alluded to Mr. Homa being the chairman and that he was one of the owners. I can't be sure whether I said that or not. . . . I know that I told her that we had traced the funds from the scheme to that account at Paine Webber and that was why I was serving the freeze order on them." (Id.)

  In January 2000, John Miron from Paine Webber called and indicated that Bonaventure was no longer employed there and that he was now working on the file and would like to close it out. In response to Hlavacek's inquiry Miron searched under the same account number and found that under a slightly different number, Banc Caribe did in fact have an account at Paine Webber at the time of the asset freeze and that the funds, $1,975,000, left Paine Webber on October. 20th and were transferred to a bank in Athens, Greece.*fn2 In response to a subsequent letter from Hlavacek Paine Webber's general counsel, Herbert Janick, promised that an investigation would be done and they would get to the bottom of what had happened and why.

  Pursuant to the October 15, 1999 freeze order, Dain Rauscher and another Bank, South Trust Bank, froze whatever assets of Banc Caribe they had at the time in their accounts. Dain Rauscher eventually transferred approximately $3.4 million through the receiver. South Trust Bank transferred approximately $200,000 to the receiver and subsequently Dain Rauscher transferred another approximately $400,000 that were the proceeds of a bond it held under the name of Banc Caribe. Later, in July, the receiver was successful in freezing $4.7 million in a Bank America account. That money is still not in the receiver's possession.

  Sonia Bonaventure testified on behalf of Paine Webber. Ms. Bonaventure holds a bachelor of science degree from St. Francis College. She was employed by Paine Webber during the time in question as a paralegal. As such, her responsibility was to respond to subpoenas. She testified she had no responsibility, experience, or training in responding to an asset freeze order. She denied that anybody had ever told her that Paine Webber might have accounts that were subject to a freeze order or that funds from a fraud had been traced to PaineWebber and should be frozen. She denied that the handwriting on the freeze order copy, Exhibit 9, is hers, and she does not recall ever having received a copy of that document. Had she received such a document, she testified she would have turned it over to her supervisor Dan Roberts because she does not have anything to do with freezing accounts. In all the time she was at PaineWebber she never discussed with anybody from the outside that funds traced to PaineWebber should be frozen because they were the fruits of a fraud or anything like that. She has never worked with freeze orders. (Id. at 97.) From the subpoena file (Ex. 27), which PaineWebber mysteriously re-discovered just a few days before the commencement of this evidentiary hearing, Bonaventure identifies two documents, designated pp. 27-51 and 27-52, which establish the existence of an account at Paine Webber numbered GO 49869 in the name of BancCaribe with a balance of $2 million as of August 30, 1999. She indicates that these two documents were generated on August 31, 1999 and that they could have been generated only by putting in the proper account number, but the account number could have been found by using the account name. (Hearing at 101.) In other words, if anyone had searched for accounts under Banc Caribe they would have come up with the correct account number and could then have used that number to generate these two pages. In spite of the fact that the subpoena file contains an account statement for Banc Caribe Account GO 49869, and that Hlavacek testified he inquired about a Banc Caribe account number GO 4986C, Bonaventure states that she has no recollection of ever discussing either account or account number with any SEC representative. She indicates, however, that if she had found the information reflected in the account sheets for those account numbers, she would have supplied that information to the SEC had they requested it. Bonaventure can conceive of no reason for her to have looked up, printed to paper, and filed the computer screen for Account GO 49869 other than for the purpose of fulfilling her obligations under the subpoena assigned to her by her supervisor. Someone, she states, must have asked her about that account. (Id at 116.) She testified that it is possible that someone asked her apart from the request in the subpoena. In response to a series of questions from the Court, Bonaventure affirms that the subpoena in the subpoena file which she kept named Banc Caribe. In order to comply with this request she would run a search for the name "Banc Caribe." If she had done that she would have come up with the computer screen for the GO 49869 account of Banc Caribe showing a $2 million balance. And if she had come up with such a document she would have forwarded it to the SEC as part of the response to the subpoena. She concludes that if she had followed her usual procedures she would, in fact, have sent the Account GO 49869 document showing the $2 million dollar balance for Banc Caribe at Paine Webber to the SEC. She concludes, however, that she did not send this information, because if she had she would expect to also see in the file the actual documents from the account, not just this printout of a single computer screen. Finally, Bonaventure indicates that she would have looked up these account documents only if necessary to respond to a subpoena assigned to her by her supervisor or if someone else had asked her about that account. Although the GO 49869 account was not opened until August 20, 1999, after her initial response to the subpoena, it was discovered by PaineWebber on August 31, 1999, well before the freeze order — but about the time that Hlavacek testified he inquired of PaineWebber both by fax and phone conversation of the existence of such an account. From this set of circumstances and occurrences we find it is clear that someone at PaineWebber, probably Bonaventure, did receive Hlavacek's request for the information about the $2 million dollar Banc Caribe account, found the account and printed out pp. 27-51 and 27-52 of Exhibit 27. The documents and information were never sent to Hlavacek during the investigatory phase of the case and subsequently, after the complaint was filed, the account reflected in these documents was never frozen by PaineWebber even though PaineWebber was aware that the SEC considered the information regarding the account as part of its investigation of the whereabouts of the proceeds of the Cash 4 Titles Ponzi scheme and even though the freeze order subsequently issued named Banc Caribe as one of the agents of the defendants that was specifically barred from transferring any of the defendant's assets. PaineWebber's failure to freeze the $2 million account under these circumstances is at the very least reckless. Had PaineWebber either communicated the existence of this account to Hlavacek or frozen the account upon receipt of the court's order, the $2 million with still be available for the reimbursement of the thousands of innocent investors who were duped by this scheme.

  Paine Webber's counsel argues that evidence establishes that on August 31, 1999, Hlavacek had a conversation with Bonaventure in which he gave her an account number, to wit GO4986C, which was incorrect. Bonaventure "looked up that number" and told him there was no such account At the same time, she found account number 49869 which also had $2 million in the account and told Hlavacek about it Hlavacek told her he would get back to her, but "it's undisputed that he never got back to her about information from Dain Rauscher or any further clarification about the number. And that was the last time that Ms. Bonaventure was ever asked to address or focus on that account" (Hearing at 76.) We cannot accept this amazing argument. To find this argument convincing, we would have to conclude that Hlavacek, after hearing that Paine Webber did in fact have a Banc Caribe account with the precise amount of money as the Cash 4 Titles funds he was looking for, and with the exact same account number except for one digit either determined that this could not possibly be the funds he was tracing from Dain Rauscher or simply neglected to follow up by asking for the 49869 account statements. This would be an astonishing failure for an MBA/CPA Securities and Exchange Commission investigator who had been intensely tracing these very funds for some time. Not to mention that both Hlavacek and a Bonaventure deny any recollection of such an event Further, Hlavacek testified that he inquired as to this 4986C account several times thereafter, although this is contradicted by Bonaventure. But it is uncontradicted that before consenting to Miron's request to close the subpoena inquiry, Hlavacek once again asked for a tracing of the $2 million which he was informed had been transferred from a Dain Rauscher Banc Caribe account to a Paine Webber Banc Caribe account. Why he would still be making such a request months later and yet not have requested an accounting and tracing of the $2 million in the Banc Caribe 49869 account when he first heard of it, PaineWebber does not explain. We must keep in mind that the SEC investigation had already established, and therefore Hlavacek already knew, that Banc Caribe was an off' shore Bank created by defendant Homa to launder Cash 4 Titles funds in the island of Dominica. How could Hlavacek have failed to follow up when informed that this entity established by Homa to launder Cash 4 Titles funds had $2 million sitting in a PaineWebber account whose account number was almost identical to the number Dain Rauscher had given him as the transferee of $2 million in Cash 4 Titles funds? There is absolutely no other credible evidence in the record to support such a conclusion. On the contrary it is clear from the record that Hlavacek was extremely interested in recovering these funds and was frustrated that they seem to have disappeared upon reaching PaineWebber. Moreover, it also is undisputed that when Hlavacek finally found out from Miron that a Banc Caribe account 49869 existed and that $2 million in it had been transferred to Athens, Greece, he was so upset that he wrote to PaineWebber's general counsel demanding an explanation. Yet, we are asked to believe that months earlier when told that such an account existed at PaineWebber, he did nothing whatsoever to freeze the account. There are significant inherent inconsistencies in PaineWebber's interpretation of the evidence. Why PaineWebber never informed Hlavacek of the existence of this account we do not know, but the only logical reasonable conclusion from the documentary and testimonial evidence is that Hlavacek was not informed even though it is clear that PaineWebber knew of the existence of the account in the name of Banc Caribe and that the account contained $2 million.

  From these exhibits and testimony we conclude that the receiver has established by clear and convincing evidence:*fn3 1.) The subpoena duces tecum issued by the Securities and Exchange Commission to Paine Webber on July 22, 1999, indicates that the subpoena relates to "In the Matter of Certain Internet Offerings (HO-3500), an investigation pursuant to a formal order issued by the Securities and Exchange Commission under the authority of Section 20(a) of the Securities Act of 1933 and Section 21(a) of the Securities Exchange Act of 1934."

2.) Under documents to be produced, the subpoena describes:
[T]he following documents relating to all accounts in the name of or for the benefit of; Sunset Financial Services LLC, Atlanta Jet Properties LLC, C4T Inc., C4T Funding, Inc. C4T Management Inc., Custom Compounding Centers Inc., GMD Aviation Inc., Florida Construction and Development Inc., Florida Development Fund 1995, Silver Line Development Corp., S & R Financial Inc., Banc Caribe, and Adams Stephens Inc. including but not limited to account # FH2345118.
(Ex. B) (emphasis added).From this it is clear that Paine Webber had been informed that Banc Caribe was a suspect in the Ponzi scheme investigation.
3.) That the defendants and any of their agents who have actual notice of the order are prohibited from transferring or otherwise disposing of in any manner the funds, assets, or other property belonging to or in the possession, custody or control of the defendants. Therefore, Banc Caribe was barred by the order from transferring any assets being held for the benefit of any defendant.
4.) Having received the freeze order, Paine Webber was on notice that Banc Caribe was forbidden to transfer the funds of any defendant, including T/P Funding Services, Inc. and that therefore, Paine Webber was prohibited from aiding Banc Caribe's transfer of any such funds. Although Paine Webber was not specifically named in the order, the order clearly required a specific course of action from it and all others with notice of its prohibition.
5.) The PaineWebber account number GO 49869 in the name of Banc Caribe with a balance of $2 million existed as of at least August 8, 1999. PaineWebber was aware that the SEC was attempting to find and trace the money in this account as money representing proceeds of the Ponzi scheme it was investigating. We find that the information regarding the existence of this account was never given to the SEC and that after being served with the Court's freeze order, PaineWebber aided Banc Caribe in transferring these funds to an account in Athens, Greece.
  The state of mind of a parry to the underlying action is irrelevant in a civil contempt proceeding. An inadvertent violation does not preclude a contempt citation. Commodity Futures Trading Comm'n v. Premex, Inc., 655 F.2d 779, 785 n. 11 (7th Or. 1981). While in a criminal contempt proceeding the minimum requisite intent may be defined as a volitional act done by one who knows or should reasonably be aware that his conduct is wrongful, (United States v. Seale, 461 F.2d 345, 368 (7th Cir. 1972), in civil contempt proceedings the issue is not the employer's state of mind but simply whether the Court's order was in fact violated. NLRB v. Crown Laundry & Dry Cleaners, 437 F.2d 290, 293 (5th Cir. 1971). "[S]ince the purpose [of ...

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