Opinion
96 Civ. 8771 (LAK)
June 18, 2003
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Court previously held defendant Joseph Bremont in civil contempt for refusal to comply with provisions of the Final Judgment requiring disgorgement of money. It hereby supplements the findings and conclusions stated on the record in open court as follows:
I. Findings of Fact
Background
1. On November 21, 1996, the Commission filed a complaint against Joseph Bremont ("Bremont") alleging that Bremont, along with defendants Jimmy B. Sanchez, Comcar International, Ltd. ("Comcar"), and Commercial Capital Resources ("Commercial Capital"), defrauded investors of at least $2.1 million in a prime bank scheme. Compl. ¶ 1.
2. In 1997, the Court found: (a) it was uncontested that Bremont received over $2 million by promising to procure orders for prime bank instruments, but not a single prime bank transaction was completed; (b) "Bremont accepted large fees for brokering transactions in securities which, if they exist at all, seem to be the financial world's equivalent of the rarest of endangered species;" and (c) the Commission "presented cogent authority as to the fraudulent nature of [prime bank instruments]." SEC v. Bremont, 954 F. Supp. 726, 730 (S.D.N.Y. 1997).
3. While the fraud was ongoing, Bremont caused approximately $1.7 million in fraud proceeds to be transferred to either himself, Commercial Capital, or Comcar. Ozaruk Decl. Opp'n, Mar. 21, 2003 ("Comm'n Decl. Mar. 2003") ¶ 4, Exs. 6-12 (copies of transfer instructions).
4. Comcar and Commercial Capital were corporate entities controlled and directed by Bremont. Ozaruk Decl., Nov. 14, 2002 ("Comm'n Decl. Nov. 2002"), Ex. C, Bremont Dep., Mar. 21, 2002 ("Bremont Dep. 2002"), Tr. 34 (Bremont was the sole shareholder of Comcar); Comm'n Decl. Mar. 2003, Ex. 26, Bremont Dep., Mar. 12, 2003 ("Bremont Dep. 2003"), Tr. 36 (Bremont controlled Commercial Capital); see also SEC v. Bremont, 96 Civ. 8771 (LAK), 1997 U.S. Dist. LEXIS 6125, at *2 (S.D.N.Y. May 6, 1997) (Bremont took the position that his Fifth Amendment privilege against self-incrimination precluded document production from Comcar and Commercial Capital because he was the only one who could produce documents on the corporations' behalf).
5. Comcar was a Bahamian corporation. Bremont Dep. 2002, Tr. 13-14, 34-35. Bremont opened an offshore bank account for Comcar in the Bahamas at Barclays Bank (the "Comcar Bahamas Account"). Id. Bremont never produced documents demanded by the Commission that identified the persons or entities who received funds, by check and wire transfer, from the Comcar Bahamas Account.
As a result of a merger, the name of Barclays Bank in the Bahamas was later changed to FirstCaribbean.
Initially, Bremont refused to produce discovery documents to the Commission concerning Comcar and Commercial Capital, based on his assertion of his Fifth Amendment privilege, and similarly refused to provide a verified accounting of his assets. Bremont, 1997 U.S. Dist. LEXIS 6125, at *2. Following this Court's order to produce those documents, id., Bremont nevertheless refused to produce Comcar records from Barclays Bank in the Bahamas. See Filed Mem. Endorsement, May 30, 1997, on Letter from Alberto J. Troncoso, Staff Att'y, SEC, to Hon. Lewis A. Kaplan 1 (May 23, 1997). Bremont asserted that the Court's prior order to produce documents did not specifically require him to produce records from offshore sources. Id. at 2. Bremont stated also that if he were ordered to request the offshore documents sought by the Commission, he would indicate in the request that it was done under protest, "presumably to insure that the banks would not produce the records." Id. On May 30, 1997, following a hearing resulting from Bremont's failure to obey this Court's order to produce documents, this Court stated "I suspect [Bremont] is in contempt as we stand here." Tr., May 30, 1997, at 4. This Court directed the immediate production of those documents: "Let there be no misunderstanding, you better get them turned over fast." Id. at 7. Even then, Bremont made only partial production of the required documents, consisting of account statements showing simply debits and credits. Tr., July 15, 1997, at 3-5. Calling itself "stunned," this Court noted that Bremont "whether wittingly or otherwise . . . happened to frame to the bank in the Bahamas the narrowest conceivable request . . . which, had it been calculated to provide a cover under which he could claim he complied without producing any of the relevant information, couldn't have been any better." Id. at 5-6. Bremont did not produce any other offshore records prior to the entry of the consent judgment in November 1997.
6. During 1997, Bremont asserted his Fifth Amendment privilege to refuse to account for the monies that he received during the course of the prime bank scheme. Comm'n Decl. Mar. 2003, Ex. 16.
7. During the same time period in which Bremont was engaged in a prime bank scheme and caused approximately $1.7 million to be transferred to accounts under his control, supra ¶ 3, Bremont: (a) purchased land for a home in Ocala, Florida, for approximately $325,000, Bremont Dep. 2002, Tr. 19, 21; and (b) used substantial funds from the Comcar Bahamas Account to finance the construction of a new home on the Ocala property, Bremont Aff., Jan. 17, 2003 ("Bremont Aff. Jan. 2003") ¶ 24; see also id. ¶ 30 (estimating "the total investment in that home . . . [to have been] at least 1.3 million dollars"). According to Bremont, the monies that he transferred from the Comcar Bahamas Account for his personal benefit in the United States constituted "loans" from Comcar to Bremont. Id. Those funds, Bremont admitted, were proceeds of his prime bank fraud. Bremont Dep. 2003, Tr. 111, 267. According to Bremont, in 2000, he caused Comcar to "forgive" the "loans" that it had made to him, id. at 110, and recognized more than $850,000 in income on his 2000 federal income tax return due to this forgiveness, id. at 35-36, 189-91.
8. Bremont settled the claims in the Complaint by consenting to a Final Consent Judgment of Permanent Injunction And Other Relief entered on November 28, 1997. Comm'n Decl. Nov. 2002 ¶ 2, Ex. B. The Final Judgment ordered Bremont to disgorge $1,061,520 plus $244,417 in prejudgment interest, to the Clerk of Court for the Southern District of New York, no later than March 27, 1998. See id. ¶ 3 (within 90 business days of the entry of judgment).
Bremont's Post-Judgment Financial Activities
9. In February 1998, Bremont refinanced his purchase of the Ocala home with a $495,000 mortgage loan granted by Metropolitan Mortgage Co. Bremont Aff., Nov. 25, 2002 ("Bremont Aff. Nov. 2002") ¶ 20. Out of the principal amount of the loan, Bremont received $320,796. Bremont Dep. 2003, Tr. 180-83. Bremont did not use any of these funds to pay any portion of the Final Judgment.
10. In 1999, Bremont sold the Ocala home for approximately $970,000 and retained $215,871 from the sales proceeds. Bremont Aff. Jan. 2003 ¶ 30. Bremont did not use any of these funds to pay any portion of the Final Judgment. Instead, Bremont used them for personal expenses. Id. ¶ 31.
11. During 2000 and 2001, Bremont received at least $841,485 by wire transfers from Wells Wells, a law firm in the Bahamas. Bremont Aff. Jan. 2003 ¶ 32 (received $725,000 in 2000 from Wells Wells); Comm'n Decl. Mar. 2003, Ex. 29 (received $116,485 in 2001 from Wells Wells); see Tr., Apr. 22, 2003, at 61. Bremont claims that those funds were consulting and commission fees, or advances on such fees, for services provided by him to certain companies.
12. Bremont failed to produce any credible evidence corroborating his claims that these funds were consulting fees and commissions and that he actually performed the alleged services.
Bremont submitted affidavits that purported to be made by a Bahamian lawyer and a Mr. von Richter, which purported to corroborate his claims to some extent. See Bremont Reply Aff., Apr. 22, 2003 ("Bremont Reply Aff. 2003"), Ex. B, Wells Aff. ¶¶ 3, 6; Bremont Aff. Jan. 2003, Ex. GG, von Richter Aff. ¶ 3. The Court finds them unpersuasive. See Tr., Apr. 22, 2003, at 61-63; infra ¶¶ 14-15.
Furthermore, Bremont destroyed records in his possession concerning his supposed consulting services for those companies. Bremont testified:
A No. I haven't kept any [of the records]. And I won't.
Q Why?
A Because of all of the crap I went through with this last time [referring to the Commission enforcement action against him]. I do my business and that's it.
Bremont Dep. 2002, Tr. 56. Bremont similarly admitted that he "tore up" copies of statements submitted to him by Wells Wells and did not retain any. Id. at 76-77.
13. During 2000 and 2001, Bremont did not use any of the funds that he received by wire transfer from Wells Wells to pay any portion of the Final Judgment. Instead, Bremont used those funds for his personal benefit, including:
a. Making a down payment of $283,000 on his purchase of a $788,000 home in Highland Beach, Florida (his current residence), Bremont Aff. Jan. 2003 ¶ 34;
b. Spending approximately $125,000 on "decorating, repairs, and furnishings" for the Highland Beach home, including a bed costing $2,600, three ottomans costing more than $5,000, a $3,500 sofa, chairs costing in excess of $2,700, a $3,300 cocktail table, and a $2,000 night table, Comm'n Decl. Mar. 2003 ¶ 9, Exs. 17-25;
c. Giving his son, John Bremont, between $18,000 and $20,000, Bremont Dep. 2002, Tr. 114; and
d. Paying monthly expenses, including substantial mortgage payments, that Bremont estimated to be at least $120,000 per year, id. at 100 ("a minimum of about $10,000 a month").
14. During 2002, Northstar International, an entity controlled by Bremont, received $257,159 in wire transfers from various sources. Comm'n Decl. Mar. 2003, Ex. 30. According to Bremont, these transfers were "advances" and "loans" from companies for which Bremont was performing consulting services against fees Bremont expected to earn for consulting services. Bremont Aff. Nov. 2002 ¶ 15. At least $95,000 of these funds were received from Rolf von Richter, supposedly a California attorney residing in Costa Rica, in the form of no-interest "loans." Bremont Dep. 2003, Tr. 137-39; Bremont Aff. Jan. 2003, Ex. GG.
15. Von Richter told a representative of the Commission that he never met Bremont, but was asked to lend him money at the behest of a "client" whom von Richter would not identify, Comm'n Decl. Mar. 2003, Ex. 31 (memo of conversation with von Richter), but whom Bremont has identified as Stanley Torchia, a longtime friend and business associate, as well as other "clients." Tr., Apr. 22, 2003, at 24-25. Notwithstanding that von Richter never met Bremont, he told the Commission representative that he would loan Bremont more money if asked to do so. Comm'n Decl. Mar. 2003, Ex. 31.
16. Bremont did not use any of the funds that Northstar and he received during 2002 to pay any portion of the Final Judgment. Instead, Bremont used the money to pay his living expenses, id. Tr. 136, make payments on pawned jewelry, id. at 126-30, pay legal fees, id. at 136, and pay other bills, id. at 130-32. He did so in spite of the fact that he then was subject to the terms of the Court's 2002 freeze order.
The Contempt Proceeding
17. On November 14, 2002, upon application by the Commission, the Court issued an order requiring Bremont to show cause why: (a) Bremont should not be adjudged in civil contempt;
(b) Bremont's assets should not be frozen; and (c) Bremont should not be incarcerated until he purged his contempt by payment of the outstanding judgment (the "Order To Show Cause").
18. In response to the Order To Show Cause, Bremont admitted that he had not paid any portion of the Final Judgment through November 2002. See Bremont Aff. Nov. 2002 ¶ 7. Bremont alleged that he was unable to pay any portion of the Final Judgment at that time and therefore should not be found to be in contempt of the Final Judgment. Id. ¶ 9.
19. On December 2, 2002, based upon the motion papers submitted by the Commission in support of the Order To Show Cause and an opposing affidavit and memorandum of law submitted by Bremont, the Court: (a) found Bremont in contempt of the Final Judgment (the "Contempt Finding"); (b) ordered Bremont incarcerated until such time as he complied with the Final Judgment; and (c) stayed the order of incarceration until December 19, 2002 to provide Bremont with time to present evidence in support of his claim of inability to comply with the disgorgement order contained in the Final Judgment. Tr., Dec. 2, 2002, at 17-21. In an order dated December 5, 2002, the Court ordered also that Bremont produce records concerning his bank accounts, including the Comcar Bahamas Account. See Order, December 5, 2002 ¶ 2.
20. Prior to December 19, 2002, Bremont failed to file any motion to vacate the Contempt Finding or file with the Court any evidence of his alleged inability to comply with the Final Judgment. Upon an application by Bremont, the Court further stayed the incarceration order until January 6, 2003.
21. In January 2003, Bremont moved to vacate the Contempt Finding and requested that the Court hold an evidentiary hearing. In the alternative, Bremont moved to vacate the incarceration order in favor of an alternative sanction. Upon consent of the Commission, the incarceration order was stayed further until April 22, 2003. As a result of these additional stays, Bremont had five months during which to gather evidence concerning his alleged inability to comply with the Final Judgment.
22. In March 2003, the Commission submitted a declaration and exhibits in opposition to Bremont's motion to vacate. In early April 2003, Bremont submitted another affidavit and exhibits in further support of his motion. On April 22, 2003, the Court held an evidentiary hearing in which Bremont presented himself as a witness and introduced one additional document into evidence.
Bremont's Failure to Demonstrate His Inability to Pay the Judgment
23. Bremont does not dispute that he has received large sums of money since entry of the Final Judgment. Bremont Reply Aff. 2003 ¶ 13 (admitting that he "failed to . . . at least partially satisfy the judgment when I was in a position to do so"); Bremont Aff. Jan. 2003 ¶ 48 C ("I have been irresponsible in my spending habits and have used much of the money I received for purchases related to [my homes in Ocala and Highland Beach, Florida].").
24. On his demand, Bremont repeatedly received substantial infusions of funds, which totaled more than $1 million, from accounts in the Bahamas and other offshore locations. Supra ¶¶ 11, 14. He used these funds to pay personal expenses rather than any portion of the Final Judgment. Supra ¶¶ 13, 16.
25. Bremont has failed to produce all relevant documents concerning offshore accounts, including the Comcar Bahamas Account (for which Bremont made only a partial production, after making a narrowly tailored request in 1997 to Barclays Bank in the Bahamas).
26. Bremont has failed to account fully for the more than $1.7 million in funds that he received in connection with the original prime bank scheme.
27. Bremont has failed to account for the funds that he received from Wells Wells during 2000 and 2001. In particular, other than claiming that the transfers represent "loans" against and then payment of consulting fees, Bremont has failed to identify fully the sources of the funds transferred to him by Wells Wells or the contractual bases for the amounts of the funds transferred by Wells Wells.
28. Adverse inferences appropriately are drawn against Bremont concerning his alleged inability to comply with the Final Judgment based on: (a) Bremont's assertion of his Fifth Amendment privilege to refuse to account for the proceeds of the original prime bank scheme or produce detailed banking records prior to the entry of the Final Judgment, supra ¶¶ 5-6, 8; (b) Bremont's failure to produce detailed banking records concerning the Comcar Bahamas Account, supra ¶ 25; (c) Bremont's admitted destruction of documents concerning the funds he received from Wells Wells during 2000 and 2001, supra ¶ 12; and (d) Bremont's failure to call any witnesses other than himself or produce documents that might have corroborated his contention that certain funds that he recently received from offshore bank accounts constituted "loans," fees or advances, supra ¶¶ 12, 22.
29. Bremont's failure to pay any portion of the Final Judgment is attributable at least in part to his personal animus toward the government of the United States. This personal animus is shown by: (a) Bremont's admission that, in his view, the Final Judgment constituted an example of the United States government robbing a citizen, which he considered "typical government crap," Tr., Apr. 22, 2003, at 30-32; (b) Bremont's failure to pay any federal income taxes during the period from 1998 through 2001 despite reporting income of more than $2 million, id. at 32; and (c) Bremont's failure to pay any portion of the Final Judgment despite receiving more than $1.6 million in funds during the period from December 1997 through April 2003, see supra ¶¶ 9-11, 14.
30. Bremont's affidavits and the testimony given at the April 22 hearing concerning his alleged inability to pay any portion of the Final Judgment are not credible. Tr., Apr. 22, 2003, 67.
II. Conclusions of Law
31. "[A] party may be held in civil contempt for failure to comply with an order of the court if [(1)] the order being enforced is clear and unambiguous, [(2)] the proof of noncompliance is clear and convincing, and [(3)] the defendants have not been reasonably diligent and energetic in attempting to accomplish what was ordered." EEOC v. Local 638 . . . Local 28 of Sheet Metal Workers' Int'l Ass'n, 753 F.2d 1172, 1178 (2d Cir. 1985) (internal quotations and citations omitted).
32. The "reasonable" efforts requirement is strictly construed. E.g., CFTC v. Wellington Precious Metals, Inc., 950 F.2d 1525, 1529 (11th Cir. 1992) (defendant must make "in good faith all reasonable efforts to meet the terms of the court order he is seeking to avoid") (internal quotations and citation omitted). "Even if the efforts he did make were `substantial,' `diligent' or `in good faith,' . . . the fact that [respondent] did not make `all reasonable efforts' establishes that [he] did not sufficiently rebut the . . . prima facie showing of contempt." United States v. Hayes, 722 F.2d 723, 725 (11th Cir. 1984) (internal citation omitted) (holding that the trial court's use of a "some efforts" standard for measuring the strength of respondent's defense constituted an abuse of discretion).
33. Furthermore, "[a] party seeking to avoid a finding of contempt must demonstrate that `all reasonable avenues for raising funds have been explored and exhausted.'" SEC v. Bilzerian, 112 F. Supp.2d 12, 26 (D.D.C. 2000) (internal quotation marks omitted) (quoting Phoenix Marine Enters. Inc. v. One Hylas 46' Convertible Sportfisherman Hull No. 1, 681 F. Supp. 1523, 1529 (S.D. Fla. 1988)).
34. A party's prior failure to comply with a court order despite an established past ability to do so, supports an inference that the party presently has the ability to comply with the court's order. SEC v. Princeton Econ. Int'l Ltd. 152 F. Supp.2d 456, 459 (S.D.N.Y. 2001) ("It is well-settled that if a court finds that a defendant could at some time in the past have complied with a court order, the court should presume a present ability to comply. . . .") ((quoting United States ex rel. Thom v. Jenkins, 760 F.2d 736, 739 (7th Cir. 1985)) (citing United States v. Rylander, 460 U.S. 752, 757 (1983); Maggio v. Zeitz, 333 U.S. 56, 75 (1948))).
35. A defendant in an SEC action may defend against a finding of contempt for failure to disgorge illicit profits by showing an inability to make that disgorgement. See Bilzerian, 112 F. Supp.2d at 16. But such a defendant must demonstrate a "complete inability, due to poverty or insolvency" successfully to defend a charge of civil contempt. SEC v. Margolin, 92 Civ. 6307 (PKL), 1996 U.S. Dist. LEXIS 11299, at *7 (S.D.N.Y. Aug. 8, 1996) (citing Huber v. Marine Midland Bank, 51 F.3d 5, 10 (2d Cir. 1995)). This burden is one "not easily met, as an alleged contemnor must prove `plainly and unmistakably that compliance is impossible.'" Id. at *7-*8 (quoting Huber, 51 F.3d at 10).
36. "When a party is absolutely unable to comply [with a court order] due to poverty or insolvency, inability to comply is a complete defense. Otherwise, the party must pay what he or she can." SEC v. Musella, 818 F. Supp. 600, 602 (S.D.N.Y. 1993) (internal citation omitted); see also SEC v. Porto, 748 F. Supp. 671, 672 (N.D.Ill. 1990) (finding that a defendant failed to make a good faith attempt to satisfy the judgment by not even tendering partial payment).
37. The court may consider an alleged contemnor's homestead as well as jointly owned assets in determining his ability to comply with its disgorgement order. Bilzerian, 112 F. Supp.2d at 27 n. 29.
38. A judgment debtor must make all reasonable efforts to recover monies disbursed to friends, relatives and associates. Wellington Precious Metals, 950 F.2d at 1530. Merely requesting their return is insufficient to avoid a contempt finding when greater leverage, such as legal action, is available. Hayes, 722 F.2d at 726.
39. Here, the Final Judgment unambiguously required Bremont to disgorge $1,061,520.00 in illicit profits and to pay $244,417.21 in prejudgment interest within 90 business days. Bremont has not disgorged any of the illicit profits or paid any interest. Rather than acting diligently to disgorge illicit profits, Bremont repeatedly has flouted the Judgment by using his available funds to purchase luxury goods. As discussed above, while not disgorging anything, Bremont has: (a) invested more than $1.3 million in a home, sold it, and purchased another home for $788,000, supra ¶¶ 7, 10, 13(a); (b) spent approximately $125,000 to decorate and furnish his second home, supra ¶ 13(b); and (c) given his son between $18,000 and $20,000, supra ¶ 13(c). Moreover, the transfers to Bremont from offshore, without any credible explanation of the reasons for them or their sources, coupled with Bremont's past behavior in transferring personal funds (including the proceeds of the fraud) to offshore accounts, supports the view that he has access to and control over substantial funds offshore.
40. Bremont has not met his burden of demonstrating an inability to disgorge illicit profits in spite of repeated opportunities to do so. Accordingly, Bremont has failed to demonstrate "categorically and in detail" an inability to comply with the Court's order. See, e.g., Bilzerian, 112 F. Supp.2d at 16.
41. In cases where contempt is an appropriate remedy, the court determines, among other things, whether the defendant voluntarily placed his assets beyond the reach of the Commission or the court. See, e.g., id. at 17, 28; Piambino v. Bestline Prods., Inc., 645 F. Supp. 1210, 1215 (S.D. Fla. 1986). Bremont consciously took steps to assure that there are no written records concerning his offshore transactions. Bremont's sources of income in the form of "loans" and "advances" are undocumented — in part because Bremont has made those records unavailable. Cf. Bilzerian, 112 F. Supp.2d at 26 (holding that "where assets are held in an offshore trust," and the debtor failed to provide Court with trust instrument, "the burden of proving impossibility as a defense to a contempt charge will be especially high").
42. Incarceration under a civil contempt order pending compliance with the Court's orders is within the Court's authority and is a well-recognized method of coercing compliance with court orders. See, e.g., Shillitani v. United States, 384 U.S. 364, 370-71 (1966); United States v. Bayshore Assocs., Inc., 934 F.2d 1391, 1400 (6th Cir. 1991).
43. In determining an appropriate sanction for civil contempt, a court must consider: "(1) the character and magnitude of the harm threatened by the continued contumacy; (2) the probable effectiveness of any suggested sanction in bringing about compliance; and (3) the contemnor's financial resources and the consequent seriousness of the burden of the sanction." Dole Fresh Fruit Co. v. United Banana Co., 821 F.2d 106, 110 (2d Cir. 1987). The ultimate consideration is whether the coercive sanction is reasonable in relation to the facts. New York State Nat'l Org. for Women v. Terry, 886 F.2d 1339, 1353 (2d Cir. 1989).
44. Bremont should be incarcerated. Bremont's continuing refusal to satisfy the Final Judgment undermines the deterrent effect of the Commission's enforcement actions as well as the enforcement powers of the Court. No other sanction will coerce Bremont to comply. He already is in violation of the Final Judgment, has paid nothing toward satisfying this judgment, has failed to meet his burden of establishing his inability to pay, and has lied to the Court. There is every reason, therefore, to expect Bremont to defy further orders of the Court.
45. Ordering Bremont to pay a daily fine until he complies with the Final Judgment would be futile because he has refused, for the last five years, to pay anything despite the availability of funds and the continual accrual of post-judgment interest. Accordingly, there is no reason to believe that the imposition of fines would be any more likely to coerce his compliance with the Final Judgment.
46. Incarceration is appropriate and reasonable in these circumstances and has been ordered where defendants in securities fraud cases have failed to pay court-ordered disgorgement or civil penalties. See, e.g., SEC v. Kenton Capital, Ltd., 983 F. Supp. 13, 17-18 (D.D.C. 1997);
Margolin, 1996 U.S. Dist. LEXIS 11299, at *13-*15; Porto, 748 F. Supp. at 672 (N.D.Ill. 1990).
SO ORDERED.