Securities & Exchange Commission v. Parkersburg Wireless Ltd. Liability Co.

156 F.R.D. 529, 30 Fed. R. Serv. 3d 91, 1994 U.S. Dist. LEXIS 10878
CourtDistrict Court, District of Columbia
DecidedJuly 29, 1994
DocketCiv. A. No. 94-1079
StatusPublished
Cited by23 cases

This text of 156 F.R.D. 529 (Securities & Exchange Commission v. Parkersburg Wireless Ltd. Liability Co.) is published on Counsel Stack Legal Research, covering District Court, District of Columbia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Securities & Exchange Commission v. Parkersburg Wireless Ltd. Liability Co., 156 F.R.D. 529, 30 Fed. R. Serv. 3d 91, 1994 U.S. Dist. LEXIS 10878 (D.D.C. 1994).

Opinion

MEMORANDUM OPINION

JOHN H. PRATT, District Judge.

Before the Court is plaintiff Securities and Exchange Commission’s (“the Commission”) motion requesting the Court to hold defendant Michelle Gerstner in civil contempt for [532]*532failure to comply with our June 10, 1994 order requiring Gerstner to “immediately and fully identify the custodians of the transferred funds, Cobain and TransGlobal, to the Commission, so that the Commission may serve them with a copy of the TRO.” After consideration of the filings on this issue and after review of the statements of counsel made at the hearing held July 26, 1994, the Court finds defendant Gerstner to be in civil contempt and requires her to supply the required information by August 15, 1994.

I. Background

In this action, the Commission charges that the defendants were engaged in numerous violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Commission Rule lOb-5,1 by selling unregistered securities in Parkersburg Wireless Limited Liability Company (“PWLLC”). Defendants are also accused of committing securities fraud by promising investors exorbitant and unrealistic returns.2 The Commission initially sought emergency relief in the form of a temporary restraining order (“TRO”). The Court issued the TRO on May 18, 1994,3 and then granted interim relief in the form of a preliminary injunction on June 15,1994.4 The case presently awaits further action on the merits.

Defendant Gerstner registered PWLLC as a Nevada limited liability company in early 1994 and contracted with a number of independent sales organizations to sell PWLLC membership interests. The membership interests were never registered with the Commission as securities. Ms. Gerstner served as sole manager of PWLLC until the appointment of a receiver by this Court on July 12, 1994. While she served as manager, Gerstner signed a contract on behalf of PWLLC with UniMic & Associates (“UniMic”) under which UniMic was purportedly to develop marketing materials for PWLLC. In return, UniMic was to receive 4% and later 6% of all investor funds. Gerstner admits that she owns 100% of UniMic. Gerstner deposition, p. 32.

The question of contempt stems from the Commission’s attempt during Gerstner’s deposition on June 3, 1994, to determine the financial status of UniMic as reflected in the following colloquy:

Q. So what I’m asking is other than the less than $100,000 that UniMic loaned to ServPro5 and the approximately $195,000 that UniMic has paid out for various expenses, are there other sums that UniMic has paid for any reasons?
A. There was 260,000.
Q. Who was that paid to?
A. That was paid to an individual to secure markets.
Q. Who was that?
A. I believe that was to TransGlobal in New York.
Q. And which market was that paid to secure?
A. This fee that they charged me was to, number one, help me find markets and then put option money down on a specific market, but he’s been working with that sum to secure other markets.
Hi * H? * * *
Q. Who have you been dealing with at TransGlobal?
A. Richard, and I don’t remember his— how you spell his last name, but it’s something like Cobain, C-o-b-a-e-n or C-o-b-a-in.
Q. And how did you know him or how do you know him?
[533]*533A. I came across him when I’d been looking for markets. Somebody said you could ask people for names..
Q. What kind of company is TransGlobal? A. They look for wireless cable markets, although I don’t believe that it’s just exclusive of wireless cable.
* % * Hi * *
Q. How much of the 260,000 was paid to TransGlobal, approximate?
* % * * * *
A. I don’t — I would prefer to check before I give you a figure, and I could provide that.
* * * * * *
Q. Well, just to give me some kind of ballpark, you haven’t paid more than $60,-000 in fees to TransGlobal, have you?
A. I would be happy to verify the figures and give that to you on Monday.
Q. When did this $260,000 get transferred to TransGlobal?
A. Perhaps as early as February [1994]. Q. And are there any written documents related to UniMic’s dealings with Trans-Global?
A. No, there are not.
Q. There’s no contract?
A. No, there is not.
Q. What bank account is this money held in, this $260,000?
A. I don’t know.
Q. You testified that the $260,000 was transferred to TransGlobal in approximately February ’94; is that right? [Defendant’s Counsel]: Counsel, at this point I’m going to make an objection on the record, and that is the following: UniMic is not a party to the action. Insofar as your examination is involving areas of activity regarding UniMic’s business apart from and unrelated to the business of [PWLLC] and any activities that UniMic performs on behalf of [PWLLC], it’s irrelevant, gets into areas that we believe are confidential materials, proprietary information. The client ... will not be responding to any further such questions ...
[Commission’s Counsel]: ... your client is personally subject to an asset freeze imposed by the court, and she’s now testifying about investor funds that she transferred ... and those funds are clearly subject to the freeze order of the court, and it sounds to me like they’re not being treated in that manner.
[Defendant’s Counsel]: There’s no transfer of funds, Counsel, after the date of the temporary restraining order or the asset freeze, and again it has to do with business apart from Parkersburg.

Gerstner deposition pp. 351-357. There were no more material disclosures concerning the transfer during the deposition. Defendant made no constitutional objections to the Commission’s questioning regarding the transfer to TransGlobal during the course of the deposition.

The Commission requested that Gerstner reveal the correct name, address, and phone number for Cobain so that he might be served with a copy of the TRO. Successful service of the TRO would subject the $260,-000 to the asset freeze. Gerstner declined to reveal this information. On June 7,1994, the Commission filed a formal motion with the Court to compel Gerstner to reveal the information requested and to require Gerstner to recover the money and have it retransferred into a frozen account. Gerstner filed her response with the Court via facsimile on June 10, 1994.6 In it, Gerstner stated that she had not yet had an opportunity to review the deposition transcript as permitted by Fed.R.Civ.P.

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Bluebook (online)
156 F.R.D. 529, 30 Fed. R. Serv. 3d 91, 1994 U.S. Dist. LEXIS 10878, Counsel Stack Legal Research, https://law.counselstack.com/opinion/securities-exchange-commission-v-parkersburg-wireless-ltd-liability-co-dcd-1994.