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Securities and Exchange Commission v. Sullivan

United States District Court, D. Colorado

September 19, 2014

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
WILLIAM P. SULLIVAN, II, Defendant

Page 1368

For Securities and Exchange Commission, Plaintiff: Gregory Alan Kasper, LEAD ATTORNEY, Thomas J. Krysa, U.S. Securities & Exchange Commission-Denver, Denver, CO.

William P. Sullivan, II, Defendant, Pro se, Highlands Ranch, CO.

Page 1369

ORDER GRANTING DOC. 90, PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

John L. Kane, United States Senior District Judge.

I. INTRODUCTION

This matter is part of a civil enforcement action by the Securities and Exchange Commission (" SEC" ) against Bridge Premium Finance, LLC (" BPF" ), Micheal J. Turnock, and William P. Sullivan II. The claims against BPF and Mr. Turnock were disposed of by consented stipulation after BPF and Mr. Turnock had filed Answers admitting unlawful conduct relating to the Complaint's allegations. I entered final judgments against BPF and Mr. Tunrock per the stipulation on March 11, 2013. The SEC moves under Fed.R.Civ.P.56 for summary judgment

Page 1370

on all claims alleged against Mr. Sullivan in the Amended Complaint. As explained below, because no genuine issue exists as to any material fact, summary judgment in favor of the SEC is appropriate as a matter of law in all respects.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate if the moving party can show " that there is no genuine dispute as to any material fact and the [SEC] is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is material when it would affect the outcome of the case. Adamson v. Multi Cmty. Diversified Servs., 514 F.3d 1136, 1145 (10th Cir. Kan. 2008) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A dispute is genuine " if a rational jury could find in favor of the nonmoving party on the evidence presented." Id.

Mr. Sullivan may survive summary judgment if he can show that a material fact is in dispute by citing to the record or by showing that the materials cited by the SEC " do not establish the absence or presence of a genuine dispute." Fed.R.Civ.P. 56(c)(1); Anderson, 477 U.S. at 248. The evidence submitted by the parties is viewed in the light most favorable to the nonmoving party, but Mr. Sullivan is responsible for showing more than a mere " metaphysical doubt" that factual disputes exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Instead, his assertions " must be based on more than mere speculation, conjecture, or surmise." Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).

III. FACTUAL AND PROCEDURAL BACKGROUND

On August 14, 2012, the SEC filed an emergency motion for an ex parte temporary restraining order, preliminary injunction, and other emergency relief with a civil complaint alleging that Defendants BPF, Mr. Turnock, and Mr. Sullivan perpetrated a Ponzi scheme through BPF, a business that purported to offer insurance premium financing to the public. I found that the SEC had made a prima facie showing that Defendants violated securities laws and granted a temporary restraining order that froze BPF's assets, prohibited Defendants from accepting investor funds, and temporarily enjoined Defendants from violating the securities laws until the SEC's motion for a preliminary injunction could be heard on the merits. On August 20, 2012, I heard the parties' arguments and granted a preliminary injunction against Defendants that incorporated the terms and conditions of the emergency TRO, including BPF's account freeze.

The SEC submitted an amended complaint on September 19, 2012, adding Jane K. Turnock, Mr. Turnock's former wife, as Relief Defendant. Ms. Turnock was dismissed with prejudice from the case on June 18, 2013. As mentioned above, I have already approved final judgments as to BPF and Mr. Turnock. The parties' filings that motivated my approval of the final judgments incorporated a set of stipulated facts from Mr. Turnock's related criminal plea in United States v. Turnock, 13-cr-00069-CMA (March 4, 2013), which established that Mr. Turnock and BPF were liable for perpetrating a scheme to defraud BPF's note-holders. Final Judgment as to Michael J. Turnock, March 11, 2013, ECF No. 65; Final Judgment as to Bridge Premium Finance, LLC, March 11, 2013, ECF No. 64.

With Mr. Sullivan the only remaining Defendant, the SEC asks me to find Mr.

Page 1371

Sullivan liable for primary violations of § 10(b) of the Securities Exchange Act of 1934 (the " Exchange Act" ), 15 U.S.C. § 78j(b), Rule 10b-5, 17 C.F.R. § 240.10b-5, and § 17(a) of the Securities Act of 1933 (the " Securities Act" ), 15 U.S.C. § 77q(a), related to the BPF Ponzi scheme. Alternatively, the SEC alleges aiding and abetting violations of the same, per § 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and § 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3).

Mr. Sullivan, appearing pro se,[1] argues that there are genuine issues of material fact precluding summary judgment. Def.'s Resp. to Pl.'s Mot. Summ. J. 1. His response, however, does not contain any specific legal arguments or cite to the record in support of most of his assertions. After a thorough review of the parties' submitted exhibits, depositions and other evidence, viewed in the light most favorable to Mr. Sullivan, I find that the undisputed[2] facts show the following:

A. BPF operated as a Ponzi scheme

Mr. Turnock and BPF purported to offer insurance-related investment opportunities to the public. Ex. 37, Turnock Plea 8. Investors received promissory notes in exchange for cash deposits, which were loaned to small businesses and other individuals seeking insurance premium financing. Id. Mr. Turnock guaranteed the investments by assuring note-holders that BPF's clients were charged higher interest rates than those earned on the notes. Id. The original amount invested plus any interest earned was redeemable on demand. Id. Each quarter, BPF distributed quarterly account statements listing the present interest rate for that quarter and the total balance on each investment. Id. 10-11; Ex. 38, Turnock Dep. 80:4-81:7. In his criminal plea, Mr. Turnock admitted that he started a Ponzi scheme[3] at BPF at about the time the company began functioning at a loss:

Beginning no later than 2002 and continuing into 2012, Turnock used most of the money invested by note-holders for purposes other than to make loans to BPF's clients. He used note-holders' money to pay BPF-related expenses, and he also diverted the note-holders' money to fund his other business[and personal expenses.] . . . In addition, he used money from new investments to pay redemptions requested by note-holders who had invested earlier and to make interest payments to earlier note-holders.

Id. at 10; see also ECF No. 3-2, filed 8/14/2012. By mid-2012, BPF's note-holders had been defrauded of approximately $6.7 million dollars in connection with the purchase and sale of promissory notes.[4]

Page 1372

B. Mr. Sullivan had knowledge of a fraudulent scheme at BPF by April 2012

In February 2011, Mr. Turnock hired Mr. Sullivan to complete part-time accounting work as a consultant for several of Mr. Turnock's business entities. Turnock Dep. 32:12-35:10; Sullivan Dep. 52:5-13. All of Mr. Turnock's entities were closely related to one another: they were headquartered in the same office building, used the same Internet server, and maintained accounting records in Quickbooks. Turnock Dep. 30:19-32:4; Bowen Decl., ECF No. 3-2 ¶ 3. By the end of 2011, Mr. Sullivan frequently reviewed BPF Quickbooks entries for accuracy and edits, helped interview and train new BPF employees, " refereed" disputes between BPF's accountants, relayed tasks from Mr. Turnock to BPF employees, and implemented a month-end reconciliation process that required gathering accounting print-outs for all of Mr. Turnock's entities into the " month-end folder." Sullivan Dep. 47:21-49:25, 51:3-22, 53:16-54:19, 54:12-55:17; Declaration of Judy McGuire (" McGuire Decl." ) ¶ ¶ 3-4.

The facts above demonstrate that Mr. Sullivan was closely involved with BPF's operations before 2012. His role as accountant and attendant familiarity with BPF's finances would reasonably allow the inference that Mr. Sullivan knew of or should have known of the fraud at some point before 2012. In any event, Mr. Sullivan himself admits that he knew definitively about the fraud by February 2012 . Sullivan Dep. 104:19-107:24; Def.'s Resp. to Pl.'s Mot. Summ. J. ¶ 23 (conceding that he had a " general awareness" of the fraudulent activity by February 2012). Specifically, on or about February 16 Mr. Sullivan overheard Mr. Turnock and BPF's then-CEO discussing the use of a new investor's payment to cover an existing note-holder's redemption because BPF did not have enough money to meet the redemption request. Turnock Dep. 60:19-61:7; Sullivan Dep. 104:19-107:24. Mr. Sullivan understood that BPF intended to use the new investor's payment because the company did not have enough of its own funds to meet the redemption request. Id.

Very shortly after overhearing that conversation, Mr. Sullivan's responsibilities at BPF increased. On February 17, 2012, Mr. Turnock granted Mr. Sullivan bank authorization (without signatory authority) to transfer funds between the bank accounts for all of Mr. Turnock's entities. Sullivan Dep. 100:7-101:17. Mr. Sullivan could also access all of BPF's bank account records from an online account. Id. at 103:10-23. In late March 2012, Mr. Sullivan became CFO at BPF and took over the day-to-day financial operations, including handling deposits and writing checks at Mr. Turnock's direction.[5] Sullivan Dep. 26:5-13, 55:6-11, 62:19-63:10, Def.'s Resp. to Pl.'s Mot. Summ. J. ΒΆ 28. He also trained on FinancePro and Noteholder, the software programs that generated BPF's ...


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