These are classic ill-gotten gains in the investment advisory context. See, e.g., SEC v. Trabluse, 526 F. Supp. 2d 1008 (N.D. Ca. 2007). Randall's argument that the management fees Nutmeg received (or supposedly received; see Findings of Fact [ECF No. 1085] at ¶ 287) from investment fund offerings was essentially free, clean money that he was entitled to withdraw despite his pervasive violations of the Advisers Act finds no support in the case law, or specifically, in the new cases he cites in his Motion.
Although the Seventh Circuit has not addressed how the applicable standard is to be understood, there is general agreement that "[t]he SEC may obtain a temporary injunction against further violations of the securities laws upon a substantial showing of likelihood of success as to (a) current violations and (b) a risk of repetition." U.S. S.E.C. v. Hollnagel , 503 F.Supp.2d 1054, 1058 (N.D. Ill. 2007) ; see alsoS.E.C. v. Cavanagh , 155 F.3d 129, 132 (2d Cir. 1998) ("A preliminary injunction enjoining violations of the securities laws is appropriate if the SEC makes a substantial showing of likelihood of success as to both a current violation and the risk of repetition."); S.E.C. v. Trabulse , 526 F.Supp.2d 1008, 1012 (N.D. Cal. 2007) ("A preliminary injunction enjoining violations of the securities laws is appropriate if the SEC makes a substantial showing of likelihood of success as to both a current violation and the risk of repetition.").There is also general agreement that, unlike a private litigant, the SEC may be granted a preliminary injunction without showing a risk of irreparable injury or the unavailability of alternative remedies. See, e.g. , Smith v. S.E.C. , 653 F.3d 121, 127–28 (2d Cir. 2011) ("In this jurisdiction, injunctions sought by the SEC do not require a showing of irreparable harm or the unavailability of remedies at law."
The Court, again, disagrees. In rejecting Defendant's argument, the Court looks to SEC v. Trabulse, 526 F. Supp. 2d 1008 (N.D. Cal. 2007). There, the Court denied the use of frozen assets (in a 'hedge fund') for the purposes of the defendant's own personal defense.
The documents sought by plaintiff are essential to development of plaintiff's case and the failure to produce relevant documents, or admit that the documents do not exist, has precluded plaintiff from proper prosecution of the instant litigation. See, e.g. SEC v. Trabulse, 526 F. Supp. 2d 1008, 1015-16 (N.D. Cal. 2007) (absence of records that investment advisor should have maintained as fiduciary has evidentiary value). Defendant has now been warned three times that his answer would be stricken and default entered if he did not comply with the court's orders or file opposition to the pending motion.
In proposing that these duties be assigned to a court-appointed monitor, the Commission cites cases in which courts have appointed receivers as part of plans providing equitable relief. See, e.g., Byers, 637 F.Supp.2d at 168-69; 2009 WL 2185491, at *1; SEC v. Shiv, 379 F. Supp. 2d 609 (S.D.N.Y. 2005);Credit Bancorp, Ltd., 290 F.3d 80. Courts have also appointed monitors to oversee defendants' operations and protect the interests of investors. See e.g., SEC v. WorldCom, Inc., No. 02 Civ. 4963 (JSR), 2002 U.S. Dist. LEXIS 14201, 2002 WL 1788032 (S.D.N.Y. Aug. 2, 2002); SEC v. Trabulse, 526 F. Supp. 2d 1008, 1019 (N.D. Cal. 2007); SEC v. Alanar, Inc., No. 1:05-cv-1102 (JDT) (TAB), 2007 U.S. Dist. LEXIS 63949, 2007 WL 2479318, at *1-2 (S.D. Ind. Aug. 28, 2007). Selection of an outside monitor has proven problematic in this case.