Sec. & Exch. Comm'n v. Peters
| Decision Date | 22 March 2021 |
| Docket Number | No. 5:17-CV-630-D,5:17-CV-630-D |
| Court | U.S. District Court — Eastern District of North Carolina |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. STEPHEN C. PETERS, VISIONQUEST WEALTH MANAGEMENT, LLC, VISIONQUEST CAPITAL, LLC, and VQ WEALTH, LLC, Defendants. |
On December 20, 2017, the Securities and Exchange Commission ("plaintiff" or "SEC" or "Commission") filed a complaint against Stephen Condon Peters ("Peters"), VisionQuest Wealth Management, LLC ("VQ Management"), VisionQuest Capital, LLC ("VQ Capital"), and VQ Wealth, LLC ("VQ Wealth"; collectively, "defendants"), alleging violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940 ("Advisers Act") [D.E. 1]. On June 25, 2020, the SEC moved for summary judgment and filed a memorandum and documents in support [D.E. 36]. On July 20, 2020, defendants responded [D.E. 37].1 On July 27, 2020, the SEC replied [D.E. 38]. As explained below, the court grants the SEC's motion for summary judgment.
The court accepts as true the allegations of the SEC's complaint for purposes of the SEC's motion for summary judgment. The court also has considered the entire record, including the sworn testimony at Peters's criminal trial.
Peters controlled VQ Capital, VQ Management, and VQ Wealth (collectively, the "VQ Entities"). See Compl. [D.E. 1] ¶ 24. At all relevant times, Peters was an investment adviser representative of VQ Management and held Series 7, 63, and 65 licenses. See id. Before forming VQ Management in 2005, Peters was associated with another registered broker-dealer from August 2000 through November 2004. See id.
In 2005, Peters formed VQ Management, a Raleigh-based, North Carolina limited liability company. See id. ¶ 25. Beginning in March 2016, VQ Management was registered with the Commission as an investment adviser. See id. Before March 2016, VQ Management was registered as an investment adviser with the State of North Carolina and several other states. See id. On July 12, 2017, the FBI executed a search warrant at VQ Management, along with the other VQ Entities, and at Peter's residence. Once the FBI searched these places and seized records, the VQ Entities effectively ceased operations. See id.
In 2008, Peters also formed VQ Capital, a Raleigh-based, North Carolina limited liability company, purportedly to (i) make investments in income-producing businesses and real estate, and (ii) provide financial consulting services to business owners. See id. ¶ 26. VQ Capital purportedly conducted business through its own employees and through employees of VQ Management who also provided services for VQ Capital. See id.
In 2008, Peters also formed VQ Wealth, a Raleigh-based, North Carolina limited liability company. See id. ¶ 27. According to filings made with the North Carolina Department of Secretary of State and Peters's investigative testimony, VQ Wealth was the sole member of VQ Management and VQ Capital. See id. Peters and his spouse, Amy Peters, owned a majority interest in VQWealth. See id. VQ Wealth never registered with the Commission in any capacity. See id.
Between at least April 2012 and June 30, 2017 (the "Relevant Period"), Peters, acting individually or through VQ Capital or VQ Management, fraudulently offered and sold approximately $10.1 million in promissory notes to at least 60 investors, the majority of whom were advisory clients of VQ Management. See id. ¶¶ 3-4. Many were elderly and unsophisticated. See id. ¶ 4. VQ Capital issued the notes which typically had five-year terms, and purported to pay annual interest of eight percent if paid quarterly, or nine percent if the noteholder elected to receive a lump-sum payment of principal and interest at the end of the term. See id. ¶ 3.
Although Peters varied what he told prospective investors to convince them to invest in VQ Capital notes, he repeated certain common claims to many note purchasers. See id. ¶ 5. For example, Peters told numerous investors that VQ Capital would invest the offering proceeds in revenue-producing businesses, and that he and VQ Capital would be paid from the spread between the greater return that VQ Capital would earn on the investments and the lesser return that VQ Capital was obligated to pay the noteholders. See id. Similarly, Peters represented to some prospective investors that neither he nor the VQ Entities would receive compensation from the note offering proceeds. See id. ¶ 6. To the majority of investors, Peters represented that the VQ Capital notes presented little or no risk of loss. See id. ¶ 7. Peters also told some investors that the notes were "guaranteed." See id. Peters's representations were false. See id. ¶ 8.
Although Peters used some investor proceeds on what could be construed generously as business activities, he diverted at least two-thirds of the money for his own benefit or to pay interest to, or redeem, earlier investors. See id. ¶ 9. During the Relevant Period, Peters spent at least $4.4 million to support an opulent lifestyle, including purchasing and remodeling a large horse farm in North Carolina, purchasing fine art for his home, and building and furnishing a large vacation home in Costa Rica. See id. ¶ 10.
As part of Peters's scheme, Peters routed the fraudulently obtained funds from VQ Capital through VQ Wealth and then to his own use. Peters spent at least another $4.9 million making interest and principal payments to earlier investors. See id. ¶ 11. Peters never disclosed to note purchasers that he would pay a substantial percentage of the note proceeds to himself or that he would use investor proceeds for interest payments or redemptions. See id. ¶ 13. Peters also failed to disclose to note purchasers that of the approximately one-third of the funds spent on business activities, Peters used much to pay the ongoing operating expenses of his existing businesses, rather than to invest in new businesses. See id. ¶ 14. Moreover, the notes were not guaranteed and presented substantial risk. See id. ¶ 15.
On December 20, 2017, a federal grand jury in the Eastern District of North Carolina indicted Peters. See Indictment, United States v. Stephen Condon Peters, No. 5:17-CR-411-D (E.D.N.C. Dec. 20, 2017) [D.E. 1]. On October 18, 2018, the grand jury issued a superseding indictment. See Superseding Indictment, Peters, No. 5:17-CR-411 (E.D.N.C. Oct. 18, 2018) [D.E. 57]. Count one charged Peters with violating Sections 206(1) and (2) of the Advisers Act. See id. at 1-22. Count two charged Peters with violating Sections 17(a)(1)-(3) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5. See id. at 23-24. The court presided at Peters's criminal trial in May and June 2019. The jury convicted Peters of all 20 counts, including counts one and two. See Verdict, Peters, No. 5:17-CR-411 (E.D.N.C. June 6, 2019) [D.E. 99]. Peters committed these crimes while an investment adviser who owned and operated the VQ Entities. On September 13, 2019, the court sentenced Peters to a total of 480 months' imprisonment. See Judgment, Peters, No. 5:17-CR-411 (E.D.N.C. Sept. 13, 2019) [D.E. 157]. Peters is currently incarcerated in Petersburg, Virginia, and is appealing his conviction and sentence.
Summary judgment is appropriate when, after reviewing the record as a whole, the court determines that no genuine issue of material fact exists and the moving party is entitled to judgmentas a matter of law. See Fed. R. Civ. P. 56(a); Scott v. Harris, 550 U.S. 372, 378 (2007); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The party seeking summary judgment must initially demonstrate the absence of a genuine issue of material fact or the absence of evidence to support the nonmoving party's case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has met its burden, the nonmoving party may not rest on the allegations or denials in its pleading, see Anderson, 477 U.S. at 248, but "must come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis and quotation omitted). A trial court reviewing a motion for summary judgment should determine whether a genuine issue of material fact exists for trial. See Anderson, 477 U.S. at 249. In making this determination, the court must view the evidence and the inferences drawn therefrom in the light most favorable to the nonmoving party. See Harris, 550 U.S. at 378.
A genuine issue of material fact exists if there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. See Anderson, 477 U.S. at 249. "The mere existence of a scintilla of evidence in support of plaintiff's position [is] insufficient . . . ." Id. at 252; see Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985) (). Only factual disputes that affect the outcome under substantive law properly preclude summary judgment. See Anderson, 477 U.S. at 248; Hux v. City of Newport News, 451 F.3d 311, 315 (4th Cir. 2006).
The doctrine of "collateral estoppel" or "issue preclusion" is a subset of the res judicata genre. In re Microsoft Corp. Antitrust Litig., 355 F.3d 322, 326 (4th Cir. 2004). "Applying collateral estoppel forecloses the relitigation of issues of fact or law that are identical to issues which have been actually determined and necessarily decided in prior litigation in which the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate." Id. (alteration and quotation omitted); see Sedlack v. Braswell Servs. Grp., Inc., 134 F.3d 219, 224 (4th Cir. 1998). Toapply...
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