United States v. Camarco Investments, Inc.

          REMEDIES ORDER

          R. Brooke Jackson United States District Judge.

         I. BACKGROUND

         A. Sonya D. Camarco.

         Sonya D. Camarco, a financial advisor and stock broker, defrauded several investor clients out of more than $2.8 million. The stolen funds came at least in part from the accounts of elderly people or their relatives. On May 14, 2018 Ms. Camarco pled guilty in a state court criminal case to felony counts of filing a false tax return, securities fraud, and theft. She was sentenced to prison for two consecutive terms of 10 years each and was ordered to pay more than $1.7 million in restitution to the victims.

         B. SEC Lawsuit and Asset Freeze.

         On August 23, 2017 the SEC filed the present suit to obtain disgorgement of the stolen funds, or assets derived from those funds, and the return of as much as possible of the money to the investors.^[1] Essentially, this is an alternative to the restitution order in the criminal case, because it is unlikely that Ms. Camarco, who will be in prison for much of the next 20 years, will be able to pay the restitution otherwise. Ms. Camarco is the “defendant” in the present case, but disgorgement is also sought from the “relief defendants, ” meaning the other entities or individuals who have monies or assets derived from the stolen funds. The relief defendants originally named were Camarco Investments, Inc. (a company into which Ms. Camarco deposited investor funds) and the Camarco Living Trust (a trust established by Ms. Camarco and her husband Paul O. Camarco into which a substantial portion of their assets were placed. Complaint, ECF No. 1. The Complaint was later amended to add Mr. Camarco individually as a relief defendant. ECF Nos. 50-1 (redlined version of proposed Amended Complaint) and 54 (order granting plaintiff's motion to amend).^[2]

         On the day the lawsuit was filed I entered an order freezing the funds and other assets of Ms. Camarco, Camarco Investments, and the Trust to the extent those assets were derived directly or indirectly from Ms. Camarco's fraud. ECF No. 10. I also ordered the defendant and the then-two relief defendants to provide an accounting of investor funds and other assets; prohibited destruction or alteration of documents; and authorized expedited discovery. Later I entered a modified form of the asset freeze order. ECF No. 27.

         Camarco Investments apparently has no assets now. The remaining Camarco assets are largely held by the Trust. According to an “accounting” filed on behalf of the Trust on November 17, 2017 its assets included five real properties (the Camarco's home in Monument, Colorado, referred to as the Woodhaven property, and four rental properties); a brokerage account; and two bank accounts. ECF No. 43. The Trust filed a statement of rental income and expenses related to the four rental properties. ECF Nos. 42. Monthly statements of rental income and expenses were filed thereafter.

         On February 22, 2018 the Court granted the Trust's unopposed motion to sell one of the rental properties, 501 Greta Valley Road, Guffey, Colorado, for $252, 500. ECF No. 76. The Court ordered that the net proceeds of the sale be deposited in a savings account maintained by Paul Camarco at Vectra Bank, to be used only if the funds were needed to pay expenses for the other properties. Id.

         On May 11, 2018 the Court granted the Trust's unopposed motion to sell another rental property, 106 Vale Avenue, Palmer Lake, Colorado, for $235, 000. ECF No. 81. The net proceeds were ordered to be deposited in an account maintained by the Trust at Vectra Bank and would remain subject to the asset freeze order. Id.

         On July 10, 2018 the Court granted the Trust's unopposed motion to sell another rental property, 16970 Buffalo Valley Path, Monument, Colorado for $391, 000. ECF No. 88. The net proceeds were again ordered to be deposited in an account maintained by the Trust at Vectra Bank and would remain subject to the asset freeze order. Id.

         Accordingly, to the best of the Court's knowledge the real estate assets of the Trust now are the proceeds of the sales of the Greta Valley Road, Vale Avenue and Buffalo Valley Path properties; an Oregon property referred to as the Old Coast Road property (which apparently is being marketed), and the Woodhaven property. There is no dispute that the four rental properties or their proceeds may be disgorged. There is a dispute about the Woodhaven property. That property, which is the Camarco's home, contains personal property, some of which is apparently quite valuable, as I will discuss next.

         On August 10, 2018 Ms. Camarco moved for permission to liquidate certain assets described by her attorney as “arguably subject to” the asset freeze order. These assets included vacant real estate at 329 4^th Street, Monument, Colorado, which was held in trust for her benefit in a Simplified Employee Pension (“SEP”) IRA account, with an estimated value of $69, 000; cash or cash equivalents held in a SEP IRA account with an approximate value of $90, 810; and funds in a U.S. Bank Money Savings Account in her name with an approximate balance of $35, 227. Her motion also sought permission to sell six pieces of artwork with an estimated value of approximately $99, 000 (hereafter referred to as “the Artwork”) and a Steinway Baby Grand Piano with an estimated value of approximately $10, 000 (hereafter referred to as “the Piano.” My understanding is that the Artwork and the Piano were in the Woodhaven residence and are probably assets of the Trust, although there was some confusion during the hearing as to whether they belong to the Trust, or to Camarco Investments, or to Ms. Camarco. See ECF No. 132 at 53.

         Ms. Camarco proposed that the proceeds of these assets be deposited in a savings account at U.S. Bank and later transferred to the state court registry and applied to her restitution obligation. The given reason for these requests was Ms. Camarco's (or her attorney's) fear that the proceeds of the SEC's disgorgement proceeding in the present lawsuit might be deposited with the United State Treasury and not returned to investors, such that Ms. Camarco would not have her criminal restitution order reduced. See Id. at 6-8. The SEC did not oppose liquidation of those assets, but it insisted that the assets remain in an account that is subject to the asset freeze order rather than being applied to a restitution order in the state criminal case. It argued that Ms. Camarco's request in that regard was premature because a restitution order had not yet been entered. The SEC also expressed concern that Ms. Camarco intended to use such a payment to affect her sentence in that case, a concern that, even if considered to be reasonable, is now moot. The SEC also indicated that it would likely ask this Court for an order to distribute the proceeds of disgorgement to investors, and that the Artwork and the Piano belonged to the Trust, not to Ms. Camarco. See ECF No. 92.

         The Court ultimately granted permission to liquidate the assets but ordered that the proceeds of the sales be deposited in the registry of this court if the parties could not otherwise agree on disposition of the proceeds. The Court noted that it would give full faith and credit to the state court's restitution order. ECF No. 103 at 12-14. No. one has informed the Court since that time whether or to what extent those assets were liquidated, nor where any proceeds are now located. I have checked with the Clerk of Court who has informed me that the court has received no funds related to the case.

         C. Summary Judgment.

         This case was originally set for a five-day jury trial beginning January 14, 2019 and was later continued to February 11, 2019. However, on September 14, 2018 the SEC filed a motion for summary judgment. ECF No. 98. In the motion it sought (1) a permanent injunction prohibiting Ms. Camarco from violating the securities laws; (2) a determination that “third-tier” civil penalties against her are appropriate; (3) imposition of joint and several liability for disgorgement of $1, 503, 856.86 against Ms. Camarco and the Trust, subject to offset of any disgorgement paid by Camarco Investments; (4) imposition of joint and several liability for disgorgement of $903, 631.10 against Ms. Camarco and Camarco Investments; and (5) an order that Paul Camarco disgorge $118, 475.92. Id. at 20.^[3] The motion was fully briefed. Ms. Camarco did not contest the relief sought except as to civil penalties. The relief defendants contended that the relief sought against them punishes them for the crimes of Ms. Camarco and was inequitable.

         Separately, relief defendants Paul Camarco and the Camarco Living Trust filed their own motion for summary judgment, asserting that the relief sought by the SEC has not been authorized by Congress. ECF No. 100. The SEC responded that it is authorized to seek disgorgement from those possessing gains obtained by securities violations. ECF No. 107.

         While the summary judgment motions were pending, the SEC moved to convert the jury trial scheduled for February 11-15, 2019 into a one-day remedies hearing to be conducted by the Court without a jury. ECF No. 117. The SEC informed the Court that Ms. Camarco had confessed liability; that the SEC would not, after all, request a civil penalty; and, therefore, that the sole remaining issue to be decided was equitable relief to be ordered against Ms. Camarco and the relief defendants. Id. at 2. The Trust and Mr. Camarco opposed the motion on grounds that the relief sought amounted to a civil penalty, such that they were entitled to a jury trial. ECF No. 118. In reply the SEC stated that it was authorized to seek disgorgement; that disgorgement is an equitable remedy; and that even if it weren't, a jury could only determine liability for a civil penalty. But the relief defendants have confessed that they received ill-gotten gains. Therefore, the only remaining issue is the amount of the penalty. See ECF No. 120 at 1-2.

         The Court granted the SEC's motion for summary judgment as to liability against Ms. Camarco and ordered that the scope of the remedies would be determined in the remedies hearing that the SEC had requested. ECF No. 121 at 3. The Court denied the relief defendants' motion for summary judgment. Id. at 3-6.

         II. REMEDIES HEARING

         The Court held a hearing to determine appropriate remedies, including the extent to which disgorgement would be ordered and against whom, on February 11, 2019. Both sides presented testimony and documentary evidence. A transcript of the hearing can be found at ECF No. 132.

         A. Plaintiff's Evidence.

         1. The SEC called Michael Hennigan as an expert witness. Mr. Hennigan is a former Certified Public Accountant with an employment history in financial management as a controller and Chief Financial Officer. He presently is a subcontractor for CACI International which holds government contracts including with the SEC. He conducted an extensive investigation of bank records of Ms. Camarco, Mr. Camarco, Camarco Investments, and the Trust. He also reviewed certain LPL Financial records; certain real estate records, and other documents. His goal was to trace the stolen investor funds to the extent he could for the ultimate purpose of supporting a disgorgement order. See generally Exhibit 1 (Mr. Hennigan's summary findings and conclusions) and Exhibits 2-24 (supporting documents).

         2. Mr. Hennigan's conclusions, as set forth in Ex. 1 at 1-2 were:

         a. The amount misappropriated by Ms. Camarco between August 2012 and ...