United States District Court, M.D. Florida, Tampa Division
REPORT AND RECOMMENDATION
G. WILSON, UNITED STATES MAGISTRATE JUDGE
Securities and Exchange Commission (SEC) has filed a second
amended complaint against the defendants for defrauding
investors in violation of the securities laws (Doc. 54).
Defendants, Harvey Altholtz ("Altholtz") and Wealth
Strategies Partners, LLP (" WSP"), are the subject
of the SEC's recent motion for disgorgement, interest,
and civil penalties (Doc. 108). The defendants had previously
consented to the entry of judgments that permanently enjoin
them from violating federal securities laws.
judgments provided for the court-ordered determination of
disgorgement, prejudgment interest, and civil penalties (Doc.
106, pp. 5-6; Doc. 107, p. 6). Significantly, the consent
judgments stated that the allegations in the second, amended
complaint are taken as true for purposes of a.motion on those
matters (Doc. 106, p. 6; Doc. 107, p. 6). Based upon the
conceded allegations, I recommend that the defendants,
jointly and severally, disgorge ill-gotten gains of $228,
505.97, with prejudgment interest of $52, 015.31, and that a
civil penalty be assessed against WSP in the amount of $725,
000.00 and against Altholtz in the amount of $150, 000.00.
second amended complaint essentially alleges that the
defendants engaged in a scheme to defraud over 100 investors
through misstatements and omissions concerning the financial
strength of companies invested in by two funds, the Adamas
Fund, LLLP ("Adamas Fund"), and the Stealth Fund,
LLLP ("Stealth Fund") (see Doc. 54). Altholtz was
WSP's . principal with WSP being the partner to the
Adamas and Stealth Funds (id., pp. 1,
Altholtz formed both the Adamas Fund and Stealth Fund in
order to engage in investment activities (id., p.
6). Altholtz and WSP were unregistered financial advisors to
both funds (id., p. 4). Altholtz also managed the
day-to-day businesses of both funds for WSP and solicited
investments for the funds (Doc. 100, p. 2).
to the second amended complaint, the defendants "raised
approximately $30.8 million from investors through private
sales of limited partnership interests in the Funds"
(Doc. 54, p. 1). Thus, from April 2007 through February 2008,
the defendants "raised about $ 18.1 million from 86
investors through private placement sales of limited
partnership interests in the Adamas Fund" (id.,
p. 7). Also, from December 2007 through November 2009, the
defendants "raised  12.7 million from about 57
investors through private sales of limited partnership
interests in the Stealth Fund" (id.). The defendants,
being in charge of the funds, also received management and
incentive fees (id-, p. 10). For example, between November
14, 2008 and February 1, 2010, "WSP received $ 147, 500
in management fees from the Stealth Fund" (Doc. 100, p.
3). With respect to the Adamas Fund, between November 13,
2008, and September 30, 2009, "WSP received $67, 500.00
in management fees" (id.).
second amended complaint alleged a fraudulent scheme in which
the defendants by misstatements and omissions through
newsletters and offering statements to investors, failed to
disclose to the investors the true financial state of the
companies (Doc. 54, pp. 2, 10, 15-18). Thus, the companies
that had been invested in by the funds were doing poorly,
while investors believed otherwise. Despite the companies
failing, the defendants kept investing money into the
in violation of the operating agreements, in order to keep
the failing funds afloat, the defendants from Altholtz family
trusts provided loans to the funds without disclosing the
conflict of interest to investors (id., pp. 2,
10-14). The loans were short term with high interest rates
and the trusts received preferential treatment with respect
to redemption over other investors (id., pp. 2, 3).
In particular, in January 2009, WSP . loaned the Adamas Fund
$250, 000 at an interest rate of 18% with a maturity date of
March 31, 2009, and a default interest rate that was 50.7%
based on Standards Poor's 500 stock index (id.,
pp. 13-14). WSP, however, then assigned the loan to an
Altholtz family trust (id., p. 14). The SEC in its
memorandum explains that the loan was assigned to trusts that
were in Altholtz's daughters' names (see
Doc. 109, p.7). The loan was first assigned to the Melanie S.
Altholtz Irrevocable Trust and then later to the Karyn M.
Blaise Irrevocable Trust (id.). For both trusts, defendant
Altholtz is the beneficiary and his son is the trustee (id.).
second amended complaint indicates that in April 2010,
despite the "Adamas Fund ha[ving] virtually no cash in
its bank accounts, Altholtz sold more than $325, 000 worth of
money market securities out of the fund's brokerage
account" (Doc. 54, p. 14). On behalf of the Adamas Fund,
Altholtz then issued a check to the family's trust for
$391, 005 as a repayment on the loan. The payment constituted $25
0, 000 in principal and $ 141, 005.97 in interest (id.).
Moreover, the defendant's family trusts received
preferential redemption, whereas other investors'
requests for redemption were denied (id., pp.
18-19). In other words, the loan was paid back to the family
trust - at a high interest rate - instead of providing
redemption to requesting investors.
has filed a motion seeking disgorgement with prejudgment
interest and the imposition of civil penalties against the
defendants (Doc. 109). The SEC requests that the defendants
be held jointly and severally liable for disgorgement in the
amount of $228, 505.97, plus prejudgment interest of $52,
015.31 (id.). In addition, it seeks civil penalties of $150,
000.00 against Altholtz and $725, 000.00 against WSP (id.).
filed a response opposing the imposition of . disgorgement
and civil penalties, essentially arguing that he is not to be
blamed for the losses because the loans were "all done
with the good will of attempting to save the investors from a
formidable loss" (Doc. 113, p. 10). Altholtz also places
the blame on other people and factors, including his son and
the recession (see Doc. 113).
WSP did not file any response to the motion. Notably, an
attorney (Michael C. Addison) has filed an appearance on
behalf of WSP (Docs. 77, 79). Moreover, he approved the form
of the consent document that not only authorized the entry of
a permanent injunction, but set out provisions regarding
disgorgement and civil penalties (Doc. 104-1, p. 7). Under
these circumstances, WSP would seem to be entitled to
challenge through counsel the SEC's claims of
disgorgement, prejudgment interest and civil penalties.
However, it did not do so.
SEC's motion has been referred to me (Dkt. Entry 114). A
hearing was subsequently held on the motion (Doc. 116).
Altholtz, appearing pro se, expressed his position
at the hearing. WSP did not appear.
consent judgments set out criteria under which disgorgement
and civil penalties are to be assessed. Thus, the judgments
provide (Doc. 106, p. 6; Doc. 107, p. 6):
In connection with the Commission's motion for
disgorgement and/or civil penalties, and at any hearing held
on such a motion: (a) Defendant will be precluded from
arguing that it did not violate the federal securities laws
as alleged in the Complaint; (b) Defendant may not challenge
the validity of the Consent or this Judgment of Permanent
Injunction; (c) solely for the purposes of such motion, the
allegations of the Complaint shall be accepted as and deemed
true by the Court; and (d) the Court may determine the issues
raised in the motion on the basis of affidavits,
declarations, excerpts of sworn deposition or investigative
testimony, and documentary evidence, without regard to the
standards for summary judgment contained in Rule 56(c) of the
Federal Rules of Civil Procedure.
response does not acknowledge these stipulations. Moreover,
what he does not do is challenge, or even mention, the
amounts sought by the SEC.
support of his position, Altholtz states that he
"neither admitted nor denied the allegations made by the
Commission in the Second Amended Complaint" (Doc. 113,
p. 6). Further, Altholtz explains that, due to
"extremely limited amounts of cash available for payment
of defense by legal counsel," he had to "finally
agree to sign a document presented to him by the SEC as a
means to end his forced pro se representation"
(id., p. 14). However, the consent judgments have
established the facts as admitted as true with respect to the
matter of determining disgorgement and civil penalties (see
Doc. 106, pp. 1, 5-6; Doc. 107, pp. 1, 6). Thus, the
defendants, having foregone the opportunity to go to trial,
are bound by the stipulations they made in settling this
Supreme Court has confirmed the principle that parties are
not permitted to deny the truth of stipulated facts.
Christian Legal Soc. Chapter of the University of
California. Hastings College of the Lawv.
Martinez. 561 U.S. 661, 677-78 (2010) ("factual
stipulations are formal concessions ... that have the effect
of withdrawing a fact from issue and dispensing wholly with
the need for proof of the fact"). Accordingly, the
issues of disgorgement and civil penalties are to be decided
based upon ...