U.S. S.E.C. v. Levine

• Decision Date: 24 November 2009
• Docket Number: Civil Action No. 99-02568 (HHK).
• Citation: 671 F.Supp.2d 14
• Parties: U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Gerald H. LEVINE, and Marie A. Levine, Defendants.
• Court: U.S. District Court — District of Columbia

671 F.Supp.2d 14

U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Gerald H. LEVINE, and Marie A. Levine, Defendants.

Civil Action No. 99-02568 (HHK).

United States District Court, District of Columbia.

November 24, 2009.

COPYRIGHT MATERIAL OMITTED

James Martin McHale, U.S. Securities and Exchange Commission, Washington, DC, for Plaintiff.

Christopher Blake Holley, Holley & Levine, PC, Fairfax, VA, John Dean Harper, Mark S. Dzarnoski, Las Vegas, NV, for Defendants.

MEMORANDUM

HENRY H. KENNEDY, JR., District Judge.

The U.S. Securities & Exchange Commission (the "Commission" or "SEC"), brought this action on September 28, 1999, claiming that the defendants Gerald H. Levine and Marie A. Levine (together the "Levines" or "Defendants") violated several provisions of federal securities laws. The Commission sought injunctive relief, including disgorgement of illicit profits, prejudgment interest, and statutory penalties.

At the conclusion of a ten-day trial, a jury returned a verdict finding that the Levines had violated three laws: Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 under that law [17 C.F.R. § 240.10b-5], Sections 17(a)(1), (2) and (3) [15 U.S.C. § 77q(a)(1), (2) and (3)] of the Securities Act of 1933 ("Securities Act") and Section 13(b)(5) [15 U.S.C. § 78m(b)(5)] of the Exchange Act and Rule 13b2-1 under that law [17 C.F.R. § 240.13b2-1].

Thereafter, on December 4, 2006, the Court conducted a hearing to determine the remedies to which the Commission was entitled given the jury's verdicts. Eventually this Court entered an "Order of Judgment" that required the Levines to:

a. Pay disgorgement in the amount of $217,358.69 within thirty (30) days.

b. Pay prejudgment interest in the amount of $230,325.59 within thirty (30) days.

c. Pay a $200,000 civil penalty within thirty (30) days.

d. Refrain from violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5].

On December 20, 2007, the Commission filed an Ex Parte Motion For Emergency Relief And Application For An Order To Show Cause Why Defendants Should Not Be Held In Civil Contempt ("Ex Parte Motion"). In its motion, the Commission contended that the Levines were in contempt of Court for two main reasons:

a. The Levines had allegedly failed to pay any part of the $447,684.28 of disgorgement and prejudgment interest ordered in the June 6, 2007 Order of Judgment; and

b. The Levines had allegedly violated the Court's June 6, 2007 injunction against further violations of the antifraud provisions of the federal securities laws.

Pursuant to the Commission's Motion the Court conducted civil contempt proceedings on February 20, 2008, and March 11, 12 and 13, 2008, at the conclusion of which the Court found the Levines in contempt of Court for their failure to pay the judgment. The parties were required to submit proposed findings of fact and conclusions of law regarding the Levines' alleged violation of the June 6, 2007 injunction against further violations of the antifraud provisions of the federal securities laws.

Having considered the evidence presented at the hearing and the Parties Proposed Findings of Fact and Conclusions of Law, the court makes the following:

FINDINGS OF FACT

I. THE LEVINES ARE NOT CREDIBLE WITNESSES

1. During the lengthy time this case has been pending, the Court has had the opportunity to assess the Levines' credibility and candor with the Court. Their credibility and candor were often lacking with respect to important matters.

2. For example, Mrs. Levine was impeached numerous times when she testified during the hearing. In one instance, Mrs. Levine claimed that she never signed for her daughter, MaryAnn Metz ("Metz"), on corporate checks. This testimony was directly contradicted by an affidavit Mrs. Levine attempted to admit into the proceeding which stated: "On occasion, I have signed MaryAnn Metz's name on documents and check drafts for the companies." (3/11/08 Tr. at 131). Mrs. Levine's explanation for this contradictory testimony was "I don't really think that clear in the afternoon." (3/12/08 Tr. at 38). This explanation is simply not credible.

3. Other parts of Mrs. Levine's testimony were similarly unbelievable. Mrs. Levine admitted that she lost over $209,000 gambling in Station Casinos properties in the year 2007. But Mrs. Levine claimed that she still thinks she won gambling money that year because she did better at video poker machines that are located in a grocery store she frequents. Mrs. Levine's testimony on this point is not believable.

4. Mrs. Levine's own interrogatory answers indicate that she did not have anywhere close to $200,000 in gambling winnings from grocery stores in 2007. (Pl. Ex. 117).¹ Any time individuals win more than $1,200 gambling, they are given a W-2G. And the W-2Gs the Levines have from the grocery stores add up to well under $100,000. In addition, there can be no question that Mrs. Levine must have lost some amount of money gambling in grocery stores, and those losses would offset the winnings reflected in the proffered W-2G's. Furthermore, rather than claiming that she gambled more at the grocery stores, Mrs. Levine testified that her favorite place to gamble is Station Casinos. In sum, Mrs. Levine's testimony regarding her alleged gambling winnings in 2007 is in direct conflict with her interrogatory answers and the documentary evidence. Her testimony also defies common sense.

5. Mrs. Levine also contradicted herself when trying to explain how she used the checks made out to her, to her husband, or to cash from Delaware Escrow or Euro Escrow accounts. For example, she first stated that she would go to the bank and get money to assist the companies, and then, two sentences later, she stated that, because of her health problems, she could not "just pick up on a moment's notice and move or do anything." (3/11/08 Tr. at 34). And her explanation that her health problems prevented her from travel was contradicted by her later testimony concerning the trips she took in 2007. She testified that she went on a cruise to Mexico; she traveled to California more than once; she went to Texas; and she went to Florida. Thus, her testimony regarding her ability to travel was not credible.

6. Another example of Mrs. Levine's inconsistent testimony concerns the ownership of the 2006 Cadillac Escalade that she and her husband drive. Initially, when discussing who owns the car, Mrs. Levine described herself and her husband as the "title owners," while her mother was the "legal owner." (3/11/08 Tr. at 41). After further questioning from the Court, she changed her story, claiming that her mother's purchase of the car was "like a loan to us, the money was a loan to us because she kept the title, she was—she was the lien holder on the title." (3/11/08 Tr. at 43). As for why the car ownership was set up as it was, Mrs. Levine claimed that the car was so titled "for insurance purposes." (3/11/08 Tr. at 42). Casting further doubt upon the insurance excuse was Mrs. Levine's acknowledgment that they do not allow Mrs. Levine's mother to drive the car.

7. Mr. Levine's testimony also repeatedly demonstrated that he was not credible. Mr. Levine admitted to being one of only two corporate officers for Public Highway. The other officer is his wife. Although he is a corporate officer of a company with no employees other than himself and his wife, Mr. Levine claimed to know almost nothing about what Public Highway did in 2007. The record clearly shows that Public Highway had no employees other than the Levines and kept all its corporate files in the Levines' home. In fact, Mr. Levine initially claimed not to even be sure of his own position at Public Highway. Mr. Levine also claimed to be ignorant regarding the reason a substantial amount of checks were written to himself and his wife from the account of Public Highway. Given that Mr. Levine was one of only two officers and directors of Public Highway, it is beyond belief that he would not know the reason his own company wrote thousands of dollars of checks to himself and his wife.

8. Mr. Levine's testimony regarding the business activities of Public Highway and Wire to Wire was also totally unbelievable. He stated that Public Highway was a consulting firm, and that he and his wife were the only consultants. But then, in response to a question as to whether Public Highway served as an escrow agent in 2007, he replied, "I can't answer you what it did because I wasn't involved in it." (2/20/08 Tr. at 81). Mr. Levine's stated knowledge of Wire to Wire was even less clear. When asked whether Wire to Wire, a company that he and his wife run exclusively, conducted any business in 2007, Mr. Levine testified, "I'm sure it did, but I can't answer you directly what it was." (2/20/08 Tr. at 81). It defies credulity that one of two officers and directors does not even know what business a company engages in.

9. Mr. Levine's testimony was similarly not believable when it came to explaining why Euro Escrow wrote him checks. Mr. Levine testified that, while he did not work for Euro Escrow, he "did do some errands for them," but he was not paid for this work. (2/20/08 Tr. at 71). Thus, he would have this Court believe that Euro Escrow's checks written to him were "to pay some expenses for Euro Escrow." Each of the five checks in question was for $2,000; Mr. Levine received $10,000 from Euro Escrow from February 26, 2007 to August 23, 2007, and yet his testimony is that he cannot recall what those payments were for, other than "to pay some expenses." This testimony is not believable.

10. Mr. Levine's testimony regarding the source of the funds he used to gamble was also not credible. He acknowledged that he gambled with money obtained from several sources: his social security...