Sec. & Exch. Comm'n v. Greenberg
| Decision Date | 21 May 2015 |
| Docket Number | Case No. 00–09109–CV. |
| Citation | 105 F.Supp.3d 1342 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Keith GREENBERG, Defendant. |
| Court | U.S. District Court — Southern District of Florida |
John G. Silbermann, Margaret A. Cain, Robert B. Kaplan, Securities & Exchange Commission, Washington, DC, for Plaintiff.
Jerome M. Selvers, Sonnenblick Parker & Selvers, Freehold, NJ, Scott Lawrence Cagan, GrayRobinson, P.A., Fort Lauderdale, FL, Alexander D. Widell, Moritt Hock & Hamroff, LLP, Garden City, NY, for Defendant.
ORDER ADOPTING THE REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE, AND HOLDING DEFENDANT KEITH GREENBERG IN CONTEMPT
THIS CAUSEcomes before the Court upon the Report and Recommendation [ECF No. 67] of Magistrate Judge James M. Hopkins on Plaintiff Securities and Exchange Commission's Application for an Order to Show Cause Why Defendant Keith Greenberg Should Not Be Held In Contempt of Court [ECF No. 27].
A. FINAL JUDGMENT
In 2002, the Court entered Final Judgment of $5,915,346 against Defendant Keith Greenberg.1Through default, Greenberg admitted to violating the Securities Act and the Securities Exchange Act, as well as regulations promulgated thereunder.2The Final Judgment is comprised of a civil penalty of $100,000, disgorgement of $3,828,000, and prejudgment interest of $1,987,346.3
By 2010, Greenberg had paid nothing.4In late 2010, the SEC learned that Greenberg lived an “extravagant lifestyle.”5On August 11, 2011, Defendant paid $114,592.35 to the SEC,6following the sale of a condominium. The SEC applied the payment to Greenberg's civil penalty.7Greenberg paid nothing further.
By September 13, 2013, Greenberg owed the SEC $6,883,580.48.8Interest accrued at $288 a day.9On November 26, 2013, the SEC moved the Court for an Order to Show Cause Why Defendant Keith Greenberg Not Be Held in Contempt of Court.10In March 2014, Greenberg began paying $2,500 to $3,750 a month.11
The Court granted the SEC's Motion to Show Cause on November 26, 2013, and referred the Motion to Magistrate Judge James M. Hopkins for an evidentiary hearing.12The Magistrate held three such hearings on October 15, 2014, October 16, 2014, and November 3, 2014, at which he admitted into evidence both testimony and exhibits.13This is what he found:
B. FINDINGS OF FACT
Mrs. Elise Greenberg created the Elise Trust in 1996.14From 1996 to 2011, Keith Greenberg's efforts grew the Elise Trust from $1 million to $6–7 million in assets.15
The Elise Trust owns a condominium in Miami, Florida.16The Greenbergs lease this condominium from the Elise Trust.17
The Raintree Development Irrevocable Trust owns a house in Goldens Bridge, New York.18The Greenbergs lease this house from the Raintree Trust.19
At both their condominium in Miami and their house in New York, the Greenbergs have access to two luxury vehicles and a golf membership, all paid for by the Trusts.20
Braintree Properties, LLC is a New York company.21Braintree makes money by investing in medical centers.22From June 2006 to September 2011, Braintree paid $2,151,753 of the Greenbergs' personal expenses.23
Greenberg was a consultant for the consulting firm, J.D. Keith, LLC.24J.D. Keith had a contract with a medical firm paying $10,000 a month for 22 months.25Between 2004 and 2006, the medical firm also personally paid Greenberg $83,000.26
In 2006, Braintree sold some of its medical centers to the medical firm.27Because of accounting issues, a dispute arose, and Braintree and the medical firm entered into a settlement agreement.28Under the agreement, the medical firm agreed to pay Greenberg $600,000 personally over five years, provide him a $38,400 automobile expense, and reimburse him for entertainment and travel expenses.29These payments were made payable to the firm J.D. Keith in the amount of $635,538.30Greenberg used this money from J.D. Keith to pay his personal expenses.31
Vantage Beach Holdings, LLC was formed in 2010.32The Elise Trust owns and funds Vantage Beach.33Vantage Beach has recently replaced Braintree in paying the Greenbergs' personal expenses.34
Together, the Raintree Trust, Braintree, J.D. Keith, and Vantage Beach are known as “the Entities.”
Before the Court entered Final Judgment in 2002, the Greenbergs owed more than $2,000,000 to the IRS.35By 2005, that amount totaled $7,750,000.36From 2006 to 2008, the Greenbergs made partial payments to the IRS by withdrawing funds from the Entities.37The IRS has written off $5 million and as of October 2014, the Greenbergs owed the IRS $675,000.38
A court may enforce a final judgment of disgorgement, including prejudgment interest and civil penalties, through its contempt power.39To hold a defendant in contempt, the plaintiff must prove by “clear and convincing” evidence that the defendant violated the final judgment.40This requires proving that “(1) the allegedly violated order was valid and lawful; (2) the order was clear and unambiguous; and (3) the alleged violator had the ability to comply with the order.”41
If the plaintiff proves its prima facie case, the defendant may assert his “present inability to comply” as a defense.42To assert this defense, the defendant must prove “that he has made ‘in good faith all reasonable efforts' ” to comply with the final judgment.43If he does so, the burden shifts to the plaintiff to prove the defendant's “ability to comply.”44
The Magistrate concluded that Greenberg had the ability to comply with the Final Judgment, but that he did not. Accordingly, the Magistrate recommends that Greenberg be held in contempt. He also recommends that:
Defendant shall be incarcerated until such time as he satisfies the Judgment to the greatest extent he is able, or provides evidence that he has taken all reasonable efforts to comply with the Judgment yet is unable to make any payment.45
The Court must review the Report and Recommendation's legal conclusions, as well as those objected to portions, de novo.46It must be satisfied that there is “no clear error on the face of the record.”47Upon this review, the Court will overrule Greenberg's objections, sustain the SEC's, and adopt the Report and Recommendation.
OBJECTIONS
Greenberg objects to the Report & Recommendation, arguing that the Magistrate considered Greenberg's past, not present, ability to comply with the Final Judgment. According to Greenberg, the Court must look only to his present ability to comply. Defendant objects as follows:
The Magistrate Judge committed legal error by misapplying the legal standard for civil contempt holding: “In this case, the only issue in dispute is whether Defendant had, at some point since the Judgment was entered in 2002, the ability to pay some or all of that Judgment.” Having misstated the criteria, the Magistrate Judge erroneously concluded that the SEC had met its burden “... to show, clearly and convincingly, that Defendant had the ability to pay.”48
Greenberg is partly correct as what issues are in dispute, but the Magistrate Judge did not err. The SEC's burden is to prove that Greenberg “had the ability to comply” with the Final Judgment. The burden then shifts to Greenberg to prove his “present inability to comply.” According to Greenberg, “the Magistrate Judge points to no proof, much less clear and convincing proof, of Mr. Greenberg's present ability to comply.”49Such proof, however, is not the SEC's burden. The burden is on Greenbergto prove his present inabilityto comply—only then does the burden shift to the SEC to prove a present ability.The Eleventh Circuit states the requirements follows:
A party seeking civil contempt bears the initial burden of proving by clear and convincing evidence that the alleged contemnor has violated an outstanding court order. Once a prima facie showing of a violation has been made, the burden of production shifts to the alleged contemnor, who may defend his failure on the grounds that he was unable to comply. The burden shifts back to the initiating party only upon a sufficient showing by the alleged contemnor. The party seeking to show contempt, then, has the burden of proving ability to comply.50
Because the SEC proved Defendant had the ability to comply, the SEC satisfied its burden. The Magistrate did not apply the wrong legal standard, and appropriately concluded that the SEC had proved its prima facie case for contempt. Greenberg's first objection is overruled.
Next, Greenberg objects to the Report and Recommendation, arguing that the recommended incarceration is unconstitutionally punitive. If Greenberg cannot comply with the Final Judgment, then incarceration would be criminal, not civil, contempt. Greenberg would have ‘no keys to his prison.’51The question, then, is whether Greenberg proved his “present inability to comply.” “Present” means from the time of the contempt hearing to the time of the contempt citation.52The Magistrate reviewed Greenberg's arguments on this question, and, based on his findings, concluded each was wanting.
First, the Magistrate found that Greenberg used the Entities to pay his personal expenses. Had he wished, the Magistrate concluded, Greenberg could also use the Entities to pay his Final Judgment.53Second, the Magistrate concluded that Greenberg should have asked the Elise Trust whether it would sell one of its cars, or rent one of its homes, to allow Greenberg to pay his Final Judgment. The Magistrate found “it to be beyond belief” that the Elise Trust would not, if it were asked, “agree to a compromise” to avoid Greenberg's contempt.54Third, the Magistrate found that Greenberg withdrew money from the Entities to pay the IRS. Defendant, the Magistrate concluded, could do same for the SEC.55Finally, the Magistrate concluded that Greenberg's monthly payments, compared to the findings of his “lavish lifestyle,” were insufficient to show his good faith to comply with the Final Judgment.56Up...
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