Sec. v. Huff

Citation758 F.Supp.2d 1288
Decision Date17 December 2010
Docket NumberCase No. 08–60315–CIV.
PartiesSECURITIES and EXCHANGE COMMISSION, Plaintiff,v.W. Anthony HUFF, Danny L. Pixler, Anthony R. Russo, Otha Ray McCartha, and Charles J. Spinelli, Defendants,Sheri Huff, Roxann Pixler, Midwest Merger Management, LLC, and Brentwood Capital Corporation, Relief Defendants.
CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida

OPINION TEXT STARTS HERE

Christopher E. Martin, Linda S. Schmidt, Securities & Exchange Commission, Miami, FL, for Plaintiff.Edward Robert Averbuch, Russell C. Weigel III PA, Miami, FL, for Plaintiff/Defendants.Donald L. Cox, Clare Feler Cox, John D. Cox, William H. Mooney, Lynch Cox Gilman & Goodman PSC, Louisville, KY, Russell Cornelius Weigel, III, Russell C. Weigel III PA, Christopher E. Martin, Securities & Exchange Commission, Bruce Howard Lehr, Sherleen Mendez, Lehr Fischer & Feldman, Miami, FL, for Defendants.

AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW

ROBIN S. ROSENBAUM, United States Magistrate Judge.

This cause is before the Court upon Defendant W. Anthony Huff and Relief Defendants Sheri Huff and Midwest Merger Management, LLC's Motion for Amended Findings Pursuant to Rule 52(b), to Amend the Judgment Pursuant to Rule 59(e), and, Alternatively, for New Trial Pursuant to Rule 69(a) (Defendant's Motion”) [D.E. 314]. For the reasons set forth in this Court's Order of this same date, the Court hereby amends its Findings of Fact and Conclusions of Law issued on September 30, 2010, 745 F.Supp.2d 1284, 2010 WL 3860721 (S.D.Fla.2010) [D.E. 308].

This Court held a seven-day bench trial in this matter. The parties had consented to trial before a United States magistrate judge, see D.E. 140, and the Honorable William J. Zloch had referred the matter to me in accordance with 28 U.S.C. § 636(b). [D.E. 160].

The parties filed certain stipulations for the Court's consideration at trial. See D.E. 217 at 5–8. Following the trial, the parties submitted their Proposed Findings of Fact and Conclusions of Law [D.E. 290, D.E. 291]. The Court has also reviewed the deposition transcripts of Vera Michele Brown, Danny L. Pixler, William Baumgardner, Jr., Richard Steen, Lloyd Davis, Ivan Dobrin, Brian Sly, and Thomas Cunningham, all exhibits entered into evidence at trial, Defendant and Relief Defendants' Motion for Directed Verdict [D.E. 265], all filings in support thereof and in opposition thereto, 1 the SEC's Notice of Supplemental Authority [D.E. 300], Defendant and Relief Defendants' Motion to Strike Notice of Supplemental Authority [D.E. 301], and all filings in support thereof and in opposition thereto. Pursuant to the requirements of Rule 52 of the Federal Rules of Civil Procedure, the Court now issues the following Findings of Fact and Conclusions of Law.

I. Background

This action began on March 6, 2008, when the Securities and Exchange Commission (SEC) filed the original Complaint [D.E. 1] in this matter against Defendant W. Anthony Huff (Huff) and Relief Defendants Sheri Huff, Roxann Pixler, and Midwest Merger Management LLC (collectively Relief Defendants). Shortly thereafter, on April 4, 2008, the SEC filed its Amended Complaint for Injunctive and Other Relief [D.E. 15]. The Amended Complaint also sought relief against Defendants Otha Ray McCartha, Charles J. Spinelli, Danny L. Pixler, Anthony Russo, and Relief Defendant Brentwood Capital Corporation. See D.E. 15.

Defendants, McCartha, Spinelli, Pixler, and Russo consented to judgment against themselves, see D.E. 2, D.E. 3, D.E. 17, and D.E. 73, respectively, and the Court entered judgments and final injunctions against these Defendants. See D.E. 24, D.E. 23, D.E. 25, D.E. 74. As for the Relief Defendant Brentwood Capital Corporation, on May 21, 2008, the Court affirmed an Order of Default entered by the Clerk against Brentwood Capital Corporation, Inc. See D.E. 33. Because these Defendants and Relief Defendant no longer play a role in this case, these Findings of Fact and Conclusions of Law will not review their involvement except as necessary to explain currently pending matters.

The Amended Complaint alleges that from 2001 through 2004, Defendant Huff, along with others, “siphoned tens of millions of dollars” from Certified Services, Inc. (“Certified”), a professional employee leasing organization. D.E. 15 at ¶ 1. According to the Amended Complaint, Huff secretly served as a “control person of Certified,” and, with others, employed “an elaborate scheme conducted in flagrant disregard of the federal securities laws.” Id. More specifically, the Amended Complaint asserts that Huff and others artificially inflated Certified's financial condition and failed to disclose related party transactions that benefitted Huff and the others. Id. at ¶ 2. As a result, the Amended Complaint continues, Huff and others overstated Certified's financial condition to the SEC and the investing public by approximately $112 million. Id.

The Amended Complaint further contends that Huff and others accomplished this feat by recording almost $47 million in “bogus Letters of Credit” as an asset on Certified's balance sheet while simultaneously failing to report approximately $65 million in liabilities. Consequently, Certified allegedly overstated its assets by approximately 35% and understated its liabilities by about 38% for the fiscal year-end 2002 and understated its liabilities by more that 50% for the fiscal year-end 2003. Id.

In addition, the Amended Complaint accuses Huff of using his control over Relief Defendant Midwest Management, LLC (Midwest), Certified's controlling shareholder, to divert money improperly out of Certified's coffers and into his own pocket by orchestrating Midwest's entry into “bogus agreements” with Certified. Id. at ¶ 3. As a result of these alleged violations, the SEC suggests, Huff and the Relief Defendants reaped “millions of dollars in ill-gotten gains.” Id. at ¶ 4. To remedy these purported transgressions, the SEC seeks (1) a declaration that Huff violated the federal securities laws as alleged in the Amended Complaint; (2) a permanent injunction enjoining Huff and his agents from violating Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77a, et seq. (Securities Act), and Sections 10(b) and 20(a) and Rule 10b–5 of the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq. (Exchange Act), and from aiding and abetting any violation of Section 10(b) and Rule 10b–5 of the Exchange Act; (3) an order requiring sworn accountings from Huff and Relief Defendants Sheri Huff, Roxann Pixler, Midwest; (4) an order requiring Huff and the Relief Defendants to disgorge ill-gotten gains; (5) an order directing Huff to pay civil money penalties under the Securities Act and the Exchange Act; (6) an order barring Huff from serving as an officer or director of any public company; and (7) an order precluding Huff from directly or indirectly participating in an offering of penny stock.

The SEC, Huff, and the Relief Defendants (collectively, “the Parties) filed a Notice of Right to Consent to Disposition of a Civil Case By A United States Magistrate. [D.E. 160]. The Honorable William J. Zloch then assigned this matter to me. See D.E. 160. The Court conducted a seven-day bench trial. [D.E.s 258–264]. Prior to trial, the Parties filed a Joint Pretrial Stipulation in which they entered into certain stipulations of fact. See D.E. 217 at 5–8.

During the trial, the Court heard live testimony from Huff, Sheri Huff, Roxann Pixler, Charles Spinelli, Ivan Dobrin, Adam Dobrin, James Feltman, William Romashko, Otha Ray McCartha, Thomas Bean, and R. David Wallace. In addition, the Parties submitted by designation the depositions of Vera Michele Brown, Danny L. Pixler, William Baumgardner, Jr., Richard Steen, Thomas Cunningham, Lloyd Davis, Ivan Dobrin, and Brian Sly. See D.E. 220 at 3–15; D.E. 218 at 62–66. The Court has reviewed these deposition transcripts.

The following exhibits were admitted into evidence during the trial: Plaintiff's Exhibits (“PX”) 7, 59, 86, 88, 105, 115,2 150, 151, 158, 164, 167, 173, 178, 180, 182, 231a, 268, 308, 309, 341, 416b, 425, 448, 456b, 464, 490, 491, 505, 548, 550, 553, 554, 555, 556, 557, 560, 562, 564, 565, 566, 567, 570, 575, 576, 578, 579, 580, 583, 584, 585, 588, 590, 591, 594, 595, 599, 600, 608, 609, 612, 615, 616, 617, 618, 630, 631, 632, 635, 636, 637, 639, 643, 647, 652, 658, 659, 672, 674, 675, 676, 677, 678, 679, 680, 681, 682, 683, 691, 722, 723, 724, 725, 800, 802, 814, 816, 817, 818, 819, 820, 822, 823, 824, 827, 829, 830, 831, 832, 836, 845, 846, 847, 848, 849, 856, 862, 865, 866, 869, 872, 875, 877, 878, 879, 879b, 879c, 880, 881, 882, 883, 884, 885, 886a, 886b, 886c, 886d, 886e, 889, 890, 892, 907, 908, 909, 920, 921, 929, 930, 931, 932, 933, 934, 938, 966, 968, 969, 970, 972, 976, 977, 980, 984, 986, and 994 (pages strat 000482—strat 000486 of what Defendant submitted to the Court as DX 35 prior to trial but did not seek to admit at trial); and Defendants' Exhibits (“DX”) 4, 5, 6, 7, 13, 14, 20, 58, 61, 62, 67, 98, 117, 120, 149, 150, 151, 153, 154, 159, 160, 161 (the documents Defendant submitted to the Court as DX 25 and DX 26 prior to trial but did not seek to admit at trial under those exhibit numbers), and 162.

After the trial, Huff and the Relief Defendants submitted a written Motion for Judgment pursuant to Rule 52, Fed.R.Civ.P. [D.E. 265]. During the trial, the Parties had agreed and the Court had authorized that the written Motion for Judgment would be treated as if it had been made at the close of the SEC's case-in-chief and renewed at the conclusion of all evidence in the event that the Motion had been unsuccessful at the close of the SEC's case-in-chief, and that the Court would reserve ruling until the written Motion had been fully briefed and submitted to the Court. Trial Transcript (“TT”), pp. 1224, 1225. The SEC timely filed its written Response to Huff and the Relief Defendants' Motion for Judgment [D.E. 293], and Huff and...

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