United States Securities and Exchange Commission v. Mediatrix Capital Inc. et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Raymond P. Moore
Civil Action No. 19-cv-02594-RM-SKC
UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
MEDIATRIX CAPITAL INC., et al.,
Defendants,
and
MEDIATRIX CAPITAL FUND LTD., et al.,
Relief Defendants.
______________________________________________________________________________
ORDER
______________________________________________________________________________
Before the Court is the Verified Post-Remand Renewed Motion for Limited Relief from
Asset Freeze and Request for Evidentiary Hearing by Defendant Michael S. Young and his wife,
Relief Defendant Maria C. Young (ECF No. 400), seeking an Order releasing $510,000 to pay
counsel and costs. The Motion has been briefed (ECF Nos. 412, 422) and is denied for the
reasons below.
I. 	BACKGROUND
This is a civil enforcement action in which Plaintiff alleges Defendants raised over
$125 million through a fraudulent investment scheme. In September 2019, the Court issued an
Order granting Plaintiff’s Emergency Motion for an Ex Parte Asset Freeze, Temporary
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Restraining Order, Order to Show Cause, and Other Emergency Relief. (ECF No. 10.)
Defendants subsequently consented to entry of an Order extending the asset freeze until final
adjudication of this case on the merits, subject to Defendants’ and Relief Defendants’ right to
move the Court for relief from the asset freeze and Plaintiff’s right to oppose any such motion.
(ECF No. 38.) As of June 30, 2023, the Receiver in this case reported that the value of the assets
in his control was about $24 million. (ECF No. 434-1 at 4.) This amount is less than one tenth
of the $251 million in assets subject to the Court’s Order, and significantly less than the
$59 million Plaintiff attributes to trading losses and misappropriation. (See ECF No. 1, ¶¶ 86,
93.)
In June 2022, the Court denied Defendants’ first motion seeking the unfreezing of certain
assets. (ECF No. 133.) Defendants’ second round of motions seeking substantially similar relief
was denied in January 2021. (ECF No. 213.) The Youngs and some Relief Defendants appealed
the latter ruling to the United States Court of Appeals for the Tenth Circuit, where it was
consolidated with two appeals by other Defendants. (ECF Nos. 218, 224, 271.) As pertinent
here, the Tenth Circuit ruled that all the Youngs’ arguments had been forfeited due to their
failure to adequately preserve or develop them. (ECF No. 400-1 at 10-12.) The Tenth Circuit
ultimately affirmed the Court’s Orders denying relief from the asset freeze but remanded the
matter for the Court to revisit whether to hold a hearing, as requested by some Defendants, not
including Defendant Young. (Id. at 15.)
The Youngs then filed their current Motion, once again seeking relief from the asset
freeze, requesting a hearing to determine lawful disgorgement limitations, and seeking a ruling
on five issues: (1) whether modification of the asset freeze to release funds to pay counsel
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requires the Court to apply a multi-factor balancing test; (2) whether the Youngs have a Fifth
Amendment right to retain counsel before the government deprives them of the funds necessary
for a defense against that deprivation; (3) whether Plaintiff has congressional authority to seek
prejudgment asset freezes; (4) whether, post-Liu v. SEC, 140 S. Ct. 1936 (2020), disgorgement
can exceed investors’ net losses; and (5) whether, in light of Liu, this Court must hold a hearing
to determine how much disgorgement Plaintiff can reasonably hope to recover and then limit the
asset freeze accordingly. (ECF No. 400 at 2.)
II. 	LEGAL STANDARD
The primary purpose of freezing assets is to facilitate compensation of defrauded
investors in the event Plaintiff establishes a violation of federal securities law. SEC v. End of the
Rainbow Partners, LLC, No. 17-cv-02670-MSK-NYW, 2019 WL 8348323, *4 (D. Colo.
Nov. 25, 2019). Parties seeking to carve out assets from an asset freeze must establish that
(1) the funds they seek to release are untainted and (2) there are sufficient funds to satisfy any
disgorgement remedy that might be ordered in the event a violation is established at trial. Id.
Investors on whose behalf the assets were frozen have a heightened interest in having those
assets maintained where there is no likelihood that a surplus will exist if Plaintiff prevails. Id.
III. 	ANALYSIS
Plaintiff first argues the Youngs’ arguments are precluded by law of the case doctrine and
that its Motion amounts to an improper request for reconsideration. The Court agrees.
“Law of the case doctrine permits a court to decline the invitation to reconsider issues
already resolved earlier in the life of a litigation.” Entek GRB, LLC v. Stull Ranches, LLC,
840 F.3d 1239, 1240 (10th Cir. 2016). Thus, under Tenth Circuit precedent, “a legal decision
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made at one stage of litigation, unchallenged in a subsequent appeal when the opportunity to do
so existed, generally becomes the law of the case.” Id. at 1242 (quotation omitted).
Here, the Tenth Circuit ruled that the Youngs forfeited most, if not all, the arguments
they attempt to raise in their Motion by failing to brief them adequately on appeal. The Youngs
contend that the law of the case doctrine does not apply because “the Tenth Circuit did not
actually decide the substantive issues” (ECF No. 422 at 2), but they do not deny they had the
opportunity to present these issues on appeal. “The promotion of judicial economy—a primary
concern underlying the law of the case doctrine—requires that litigants be encouraged to present
all available claims and defenses at the earliest opportunity.” McIlravy v. Kerr-McGee Coal
Corp., 204 F.3d 1031, 1035 (10th Cir. 2000). The Youngs fail to explain why they could not
have preserved and developed these arguments at an earlier stage of this litigation. See Entek
GRB, 840 F.3d at 1241 (stating that law of the case doctrine bars “relitigation of issues either
expressly or implicitly resolved in prior proceedings in the same court”). Thus, the Court finds
the law of the case doctrine precludes further consideration of these issues.
The Youngs also contend that, in light of Liu, the factual and legal landscape has changed
since they previously requested assets and that they “are entitled to a proper application of Liu.”
(ECF No. 422 at 3.) But even assuming Liu amounts to a change in the law warranting
reconsideration of the Youngs’ request, they have not adequately explained how the asset freeze
in this case is at odds with that decision. They have not shown, for example, that the frozen
assets exceed the amount necessary to award equitable relief in this case. See United States
ex rel. Rahman v. Oncology Assocs., P.C., 198 F.3d 489, 498 (4th Cir. 1999) (“That money
damages are claimed along with equitable relief does not defeat the district court’s equitable
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powers.”). 	Indeed, as Plaintiff points out, “Liu confirms this Court’s authority to order
disgorgement.” (ECF No. 412 at 21 (citing Liu, 140 S. Ct. at 1943; 15 U.S.C. § 78u(d)(7)).)
Finally, the Court finds that fundamental aspects of this case have not changed. The
preliminary injunction asset freeze was imposed after the Youngs and other Defendants and
Relief Defendants waived their right to a preliminary injunction hearing and stipulated to the
preliminary injunction. Cf. Rahman, 198 F.3d at 501 (“For strategic reasons, the defendants . . .
elected not to proceed with a hearing but to leave the temporary restraining order in place
indefinitely as a preliminary injunction.”); id. at 501-02 (“[T]he defendants were not challenging
. . . the absence of facts or factual findings by the district court because the defendants
deliberately elected not to proceed with a preliminary injunction hearing.”).
Moreover, the Youngs have had counsel throughout these proceedings, including during
their three requests for assets and two appeals to the Tenth Circuit. As with the Youngs’
previous requests for assets, there still is no dispute that the assets currently available will be
insufficient to compensate the defrauded investors, and the Youngs have not shown that the
assets requested are untainted by the alleged underlying fraud—regardless of whether Defendant
Young personally participated in or was aware of it. The Youngs concede that Defendant
Young’s compensation was tied to the allegedly fraudulent investment scheme for which two
other Defendants have now been indicted, and they do not deny that fraud occurred. Just as a
robbery suspect has no right to use funds he has stolen to pay his attorney, “[a] defendant has no
Sixth Amendment right to spend another person’s money for services rendered by an attorney,
even if those funds are the only way that that defendant will be able to retain the attorney of his
choice.” Caplin & Drysdale, Chartered, v. United States, 491 U.S. 617, 626 (1989). Again,
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because protecting the victims of fraud is the primary purpose of the asset freeze, the Court
discerns no basis for granting the relief the Youngs seek. The Court further finds that on the
current record, a hearing on these matters would not serve the interests of judicial economy.
IV. 	CONCLUSION
Therefore, the Court DENIES the Motion (ECF No. 400) in its entirety.
DATED this 24th day of October, 2023.
BY THE COURT:
____________________________________
RAYMOND P. MOORE
Senior United States District Judge
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