«SECURITIES AND EXCHANGE COMMISSION, : : Plaintiff, : : vs. : Civil Action No. : 3:08-CV-0499-N W FINANCIAL GROUP, LLC, : ADLEY H. ABDULWAHAB a/k/a ...»
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
SECURITIES AND EXCHANGE COMMISSION, :
vs. : Civil Action No.
W FINANCIAL GROUP, LLC, :
ADLEY H. ABDULWAHAB a/k/a Adley Wahab, :
MICHAEL K. WALLENS, SR., and :
MICHAEL K. WALLENS, JR. :
PLAINTIFF SECURITIES AND EXCHANGE COMMISSION’S MEMORANDUM IN
SUPPORT OF MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANTSW FINANCIAL GROUP, LLC, ADLEY H. ABDULWAHAB a/k/a
ADLEY WAHAB, MICHAEL K. WALLENS, SR. AND MICHAEL K. WALLENS, JR.
JEFFREY B. NORRIS
SENIOR TRIAL COUNSELWashington, D.C. Bar No. 424258 U.S. SECURITIES & EXCHANGE
COMMISSION801 Cherry St., 19th Floor Fort Worth, Texas 76102 Office: (817) 978-6452 Fax: (817) 978-4927 Norrisj@sec.gov
TABLE OF CONTENTS
Table of Authorities
I PRELIMINARY STATEMENT
II. THIS MATTER IS RIPE FOR SUMMARY JUDGMENT
III. THE COMMISSION’S SUMMARY JUDGMENT EVIDENCE INCLUDES“DEEMED ADMISSIONS”
A. The Allegations in the Commission’s Complaint are Deemed Admitted for the Purpose of Establishing Disgorgement, Prejudgment Interest and Civil Penalties... 4 B. The Summary Judgment Evidence Includes Matters “ Deemed Admitted” Pursuant to Fed.R.Civ.P. Rule 36(b)
IV. THE COURT SHOULD ORDER DEFENDANTS TO PAY DISGOGREMENT EQUAL TO THE
TOTAL AMOUNT OF FUNDS COLLECTED FROM INVESTORS, LESS THE AMOUNT OFFUNDS RETURNED TO INVESTORS, PLUS PREJUDGMENT INTEREST THEREON........... 7 A. Well-Established Legal Principles Support Holding Each Defendant Liable for Disgorgement of All Funds Collected From Investors in the Fraudulent Scheme, Less Any Funds Returned to Investors
B. The Summary Judgment Evidence Establishes that the Defendants Are Liable for Disgorgement in the Amount of $13,797,966, Plus Prejudgment Interest of $1,846,574
V. THE COURT SHOULD EXERCISE ITS DISCRETION TO AWARD CIVIL PENALTIES
AGAINST THE DEFENDANTS IN APPROPRIATE AMOUNTS BASED ON THE ALLEGATIONSIN THE COMMISSION’S COMPLAINT…………
VI. THE COURT SHOULD ISSUE A PRECLUSION ORDER
American Automobile. Ass’n (Inc.) v. AAA Legal Clinic of Jefferson Crooke, P.C.
930 F.2d 1117 (5th Cir. (Tex.) May 13, 1991)
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)
In re Carney, 258 F.3d 415 (5th Cir.2001)
Donovan v. Carls Drug Co., Inc.
703 F.2d 650 (2nd Cir.1983)
Duke v. South Carolina Ins. Co., 770 F.2d 545 (5th Cir. 1985)
In Re Edmond, 934 F.2d 1304 (4th Cir. 1991)
Fontenot v. Upjohn Co., 780 F.2d 1190 (5th Cir. 1986)
Goodman v. DeAzoulay, 539 F. Supp. 10 (E.D. Pa. 1981)
Hall v. Advo, Inc., 2007 WL 210357 (N.D. Tex.)
Heidi Darland v. Staffing Resources, Inc., 41 F. Supp. 2d 635 (N.D. Tex. 1999)
Hulsey v. State of Tex., 929 F.2d 168 (5th Cir.1991)
Lyons v. Johnson, 415 F.2d 540 (9th Cir. 1969)
Robax Corp. v. Professional Parks, Inc., 2008 WL 3244150 (N.D. Tex. 2008)
SEC v. Benson, 657 F. Supp. 1122 (S.D.N.Y. 1987)
SEC v. Benson, [1984-1985 Transfer Binder], Fed. Sec. L. Rep. 92,001 (S.D.N.Y.
S.E.C. v. Chem. Trust, 2000 WL 33231600 (S.D. Fla. 2000)
SEC v. Continental Wireless Cable Television, Inc., 110 F.3d 69 (9th Cir. 1997)
SEC v. Cymaticolor, 106 F.R.D. 545 (S.D.N.Y. Jul 08, 1985)
SEC v. First Jersey Sec.., Inc., 101 F.3d 1450 (2d Cir. 1996)
SEC v. Great Lakes Equities Co., 775 F. Supp. 211 (E.D. Mich. 1991)
SEC v. Grossman, 121 F.R.D. 207 (S.D.N.Y. 1987)
SEC v. Interlink Data Network of Los Angeles, Inc., Fed. Sec. L. Rep. 98, 049, 1993 WL 603274 (C.D. Cal. 1993)
SEC v. Hughes Capital Corp., 124 F.3d 449 (3rd Cir. 1997)
SEC v. Hughes Capital Corp., 917 F. Supp. 1080 (D.N.J. 1996)
SEC v. JT Wallenbrock & Assoc., 440 F.3d 1109 (9th Cir. 2006)
SEC v. Kenton Capital, Ltd., 69 F. Supp. 2d 1 (D.D.C. 1998)
SEC v. Kern, 425 F.3d 143 (2d Cir. 2005)
SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1104 (2nd. Cir. 1972)
SEC v. Merrill Scott & Assoc., Ltd., 505 F. Supp. 2d 1193 (D. Utah 2007)
SEC v. R.J. Allen & Assoc., Inc.
386 F. Supp. 866 (S.D. Fla. 1974)
SEC v. v. Warren, 534 F.3d 1368 (11th Cir. 2008)
US v. Persuad, 229 F.R.D. 686 (M.D. Fla. 2005)
United States v. Kasuboski, 834 F.2d 1345 (7th Cir.1987)
United States v. Parcels of Land, 903 F.2d 36 (1st Cir. 1990)
Unum Life Ins. Company of Am. v. Munoz, 2007 WL 628084 (N.D. Tex.)
Williams v. Conseco Finance Corp, 2002 WL 31107510 (N.D. Tex.)
Worsham v. Minyard Food Stores, 2001 WL 611173 (N.D. Tex.)
4 Moore’s Federal Practice 26.60  (2d ed. 1987)
This matter involves the fraudulent offer and sale of so-called “Secured Debut Obligations” (“SDOs”) to more than 180 primarily elderly investors. Plaintiff Securities and Exchange Commission (“Commission”) submits this motion pursuant to Rule 56 of the Fed.R.Civ.P., seeking partial summary judgment concerning the appropriate monetary relief against the perpetrators of this fraud, W Financial Group, Inc. (“WFG”), Adley H. Abulwahab a/k/a Adley Wahab (“Wahab”), Michael K. Wallens, Sr. (“Wallens Sr.”) and Michael K. Wallens, Jr (“Wallens Jr.”)(collectively “Defendants”). There is no genuine issue of material fact concerning the appropriate monetary relief against Defendants.
established legal principles, each of the Defendants is liable for disgorgement of the amount of funds collected from investors, less funds returned to investors in the form of purported refunds of principal and purported interest payments. Attached to this Memorandum is the Declaration of William Rex Rector, a Certified Public Accountant employed by the Commission.
Summarizing his exhaustive review of WFG business and bank records, Rector demonstrates that the Defendants’ disgorgement liability is $13,797,966, plus prejudgment interest in the amount of $1,846,574.
Based on the language of Paragraph II of the Interlocutory Judgment by Consent Granting Interlocutory Injunction and Other Equitable Relief (“Interlocutory Judgment”) [Docket # 73], the allegations in the Commission’s Complaint are deemed admitted for the purpose of determining monetary relief. As set forth below, the Commission submits that these allegations The factual assertions in this memorandum are supported by evidence cited in Plaintiff’s Statement of 1 Undisputed Facts In Support Of Motion For Summary Judgment Against Defendants W Financial Group, LLC, Adley H.
Abdulwahab A/K/A Adley Wahab, Michael K. Wallens, Sr., and Michael K. Wallens, Jr. Unless otherwise necessary, the citations will not be repeated in this memorandum. Rather, reference will be made to paragraph numbers of the applicable Statements of Undisputed Facts (“FF”).
should impose civil penalties in amounts specified by the Plaintiff, the Commission requests that the Court exercise its discretion in awarding appropriate civil penalties based on the “deemed admissions.” In addition to the Rector analysis and the admissions derived from the Complaint, the Commission’s motion is supported by facts admitted by the Defendants during the course of the litigation. As set forth in the Declaration of Angelia Stewart, each of the Defendants was served with requests for admissions (“RFAs”). Each of the Defendants failed to serve timely responses to the Commission’s RFAs. Pursuant to Fed.R.Civ.P 36(a)(2), the facts delineated in the RFAs
increase the quantum of evidence supporting the Commission’s motion, they are cumulative.
Without them, there is still legally sufficient evidence to warrant granting summary judgment.
Moreover, each of the individual Defendants in this matter has asserted the Fifth Amendment privilege against self-incrimination as to all matters relating to this litigation, including issues involving to monetary relief. By virtue of Defendants’ invocation of the Fifth Amendment privilege in this civil case, the Court should draw appropriate adverse inferences concerning the matters relevant to this motion.
Finally, the Commission requests that the Court issue an order precluding the Defendants from offering evidence in response to the Commission’s summary judgment motion.
admitted.” Once the matter is admitted, Rule 36(b) provides that it is “conclusively established unless the court on motion permits withdrawal or amendment of the admission.” Fed.R.Civ.P. 36(b). In this case there has been no Rule 36(b) motion filed, so the facts are deemed admitted pursuant to Rule 36(a). Hulsey v. State of Tex., 929 F.2d 168, 171 (5th Cir.1991) (citing Fed.R.Civ.P. 36(a)). Federal Rule of Civil Procedure 56(c) specifies that “admissions on file” can be an appropriate basis for granting summary judgment. In re Carney, 258 F.3d 415, 420 (5th Cir.2001).
“Since Rule 36 admissions, whether express or by default, are conclusive as to the matters admitted, they cannot be overcome at the summary judgment stage by contradictory affidavit testimony or other evidence in the summary judgment record.” Id. (citing Duke v. South Carolina Ins. Co., 770 F.2d 545, 548-49 (5th Cir.1985)).
Amendment privilege to prevent discovery of evidence should be prohibited from presenting that evidence at trial or in response to a dispositive motion.
II. THIS MATTER IS RIPE FOR SUMMARY JUDGMENTSummary judgment should be entered where the record establishes that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The moving party bears the burden of establishing the propriety of summary judgment. See Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986) (citing Heidi Darland v. Staffing Resources, Inc., 41 F. Supp. 2d 635 (N.D. Tex. 1999)). Once a properly supported motion for summary judgment is made, the adverse party must set forth specific facts showing that there is a genuine issue for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). The substantive law will identify what facts are material. Id. at 248. A dispute as to a material fact is "genuine" only if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. As described herein, there is no genuine issue as to any material fact concerning the Defendants’ disgorgement liability. Nor is there any genuine dispute concerning the facts that should govern the determination of the Defendants’ civil penalties. The Commission, therefore, is entitled to summary relief against each of the Defendants.
Fed.R.Civ.P. 56(d) permits a party to seek a summary judgment that disposes of certain claims, facts and issues, rather than the entire litigation. Courts routinely grant the Commission’s motions for partial summary judgment on the issue of the proper amount of disgorgement. See e.g. SEC v. v. Warren, 534 F.3d 1368, 1369 (11th Cir. 2008); SEC v. Kern, 425 F.3d 143, 143-47 (2d Cir. 2005).
In addition to declarations and exhibits, the Commission’s summary judgment evidence includes facts that are deemed admitted by the Defendants. First, the Agreed Interlocutory Judgment entered by the Court states that the allegations in the Commission’s Complaint are deemed admitted for the purpose of determining the appropriate monetary relief. Second, as a result of the Defendants’ failure to provide timely responses to the Commission’s RFAs, the matters asserted in the RFAs are “deemed admitted” and “conclusively established” pursuant to Rule 36(b) of the Fed.R.Civ.P.
On July 25, 2008, the Court entered an Interlocutory Judgment by Consent Granting Interlocutory Injunction and Other Equitable Relief The Interlocutory Judgment enjoins each defendant from future violations of the securities registration and antifraud provisions of the federal securities laws. Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a); Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder [15 U.S.C § 78j(b) and 17 C.F.R. § 240.10b-5.
The Interlocutory Judgment does not quantify the Defendants’ liability for disgorgement, plus prejudgment interest, or civil penalties. Paragraph II, however, declares that the Defendants “will pay disgorgement of ill-gotten gains, prejudgment interest thereon, and civil penalties pursuant to 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)].” The Interlocutory Judgment explicitly relieves the Plaintiff of any obligation to present
evidence on liability issues for the purpose of establishing monetary relief. Paragraph II states:
For this reason, the Court should regard the allegations in the Commission’s Complaint as fully established for the purpose of considering the Commission’s summary judgment motion.