USSEC v. Mediatrix Capital

CourtCourt of Appeals for the Tenth Circuit
DecidedNovember 4, 2024
Docket23-1339
StatusPublished

This text of USSEC v. Mediatrix Capital (USSEC v. Mediatrix Capital) is published on Counsel Stack Legal Research, covering Court of Appeals for the Tenth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
USSEC v. Mediatrix Capital, (10th Cir. 2024).

Opinion

Appellate Case: 23-1339 Document: 60-1 Date Filed: 11/04/2024 Page: 1 FILED United States Court of Appeals PUBLISH Tenth Circuit

UNITED STATES COURT OF APPEALS November 4, 2024 Christopher M. Wolpert FOR THE TENTH CIRCUIT Clerk of Court _________________________________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION,

Plaintiff - Appellee,

v. No. 23-1339

MICHAEL S. YOUNG; MARIA C. YOUNG; CASA CONEJO LLC; HASE HAUS, LLC; SALVE REGINA TRUST; TF ALLIANCE, LLC; WEST BEACH LLC,

Defendants - Appellants,

and

MEDIATRIX CAPITAL INC.; BLUE ISLE MARKETS, INC., St. Vincent & the Grenadines; BLUE ISLE MARKETS, LTD; MICHAEL S. STEWART; BRYANT E. SEWALL; MEDIATRIX CAPITAL FUND LTD.; ISLAND TECHNOLOGIES LLC; VICTORIA M. STEWART; HANNA OHONKOVA SEWALL; MICHAEL C. BAKER; WALTER C. YOUNG, III; ARUAL LP; DCC ISLANDS FOUNDATION; KEYSTONE BUSINESS TRUST; WEINZEL, LLC; THE 1989 FOUNDATION; MEDIATRIX CAPITAL PR, LLC; MEDIATRIX CAPITAL, LLC; BLUE ISLE MARKETS INC., Cayman Islands; K8EDW, LTD.; TYLER WOOD, Appellate Case: 23-1339 Document: 60-1 Date Filed: 11/04/2024 Page: 2

Defendants.

------------------------------

MARK B. CONLAN,

Receivers. _________________________________

Appeal from the United States District Court for the District of Colorado (D.C. No. 1:19-CV-02594-RM-SKC) _________________________________

Tracy L. Ashmore, Robinson Waters & O’Dorisio, P.C., for Defendants – Appellants.

Morgan E. A. Bradylyons, Bankruptcy Counsel, (Megan Barbero, General Counsel; Dominick V. Freda, Assistant General Counsel, with her on the brief), Securities and Exchange Commission, Washington, D. C., for Plaintiff – Appellee. _________________________________

Before TYMKOVICH, MATHESON, and McHUGH, Circuit Judges. _________________________________

MATHESON, Circuit Judge. _________________________________

This interlocutory appeal arises from a pending Securities and Exchange

Commission enforcement action against Michael Young and others alleging a fraudulent

investment scheme. The parties stipulated to a preliminary injunction freeze of the

Defendants’ assets.

In April 2020, Michael and spouse Maria Young moved to release some of their

frozen assets. The district court denied the motion. In November 2020, the Youngs again

moved to unfreeze some of their assets. The district court denied the motion, the Youngs

appealed, and this court affirmed.

2 Appellate Case: 23-1339 Document: 60-1 Date Filed: 11/04/2024 Page: 3

In March 2023, the Youngs again moved to unfreeze, making the same arguments

they attempted to present in their previous appeal. The district court denied the motion

based on law of the case and because the motion improperly asked for reconsideration.

Now the Youngs appeal again, asserting we have jurisdiction under 28 U.S.C.

§ 1292(a)(1). As we explain below, we dismiss this appeal because we lack jurisdiction

to review the denial of their March 2023 motion.

I. BACKGROUND

A. SEC Complaint and Preliminary Injunction Asset Freeze

In September 2019, the SEC filed a complaint against individual and corporate

defendants, alleging a fraudulent investment scheme. The defendants include

Mr. Young, Michael Stewart, Bryant Sewall, and their company, Mediatrix Capital

Inc. Their spouses—Ms. Young, Victoria Stewart, and Hanna Sewall—are relief

defendants. 1

The SEC alleged that Defendants raised over $125 million from investors by

representing they would use a “highly profitable algorithmic trading strategy.”

App., Vol. I at 46. The SEC further alleged that Defendants lied about how much

money they were managing, misappropriated investors’ funds for personal gain, and

misrepresented the profitability of their trading scheme.

1 “A relief defendant is a person who holds the subject matter of the litigation in a subordinate or possessory capacity” and “may be joined in a securities enforcement action to aid the recovery of relief.” Commodity Futures Trading Comm’n v. Walsh, 618 F.3d 218, 225 (2d Cir. 2010) (quotations omitted).

3 Appellate Case: 23-1339 Document: 60-1 Date Filed: 11/04/2024 Page: 4

In October 2019, the parties stipulated to a preliminary injunction freeze of the

Defendants’ assets, subject to the Defendants’ right to ask the court for relief from

the freeze and the SEC’s right to oppose.

B. Motions to Unfreeze Assets

The Youngs moved to unfreeze some of their assets three times. The district

court denied each motion.

April 2020 Motion and Liu

In April 2020, the Youngs filed their first motion. The district court denied it

on June 25, 2020, three days after the Supreme Court decided Liu v. SEC,

591 U.S. 71 (2020). The Youngs did not appeal.

Liu addressed “whether, and to what extent, the SEC may seek ‘disgorgement’

in the first instance through its power to award ‘equitable relief’ under 15 U.S.C.

§ 78u(d)(5).” 591 U.S. at 74. The Court said the disgorgement remedy “deprive[s]

wrongdoers of their net profits from unlawful activity” and clarified that a

“disgorgement award that does not exceed a wrongdoer’s net profits and is awarded

for victims is equitable relief permissible under § 78u(d)(5).” Id. at 75-76, 79.

November 2020 Motion and Tenth Circuit Appeal

In November 2020, the Youngs filed a second motion to unfreeze, requesting

$60,000 “solely for the purpose of retaining and paying counsel.” App., Vol. II

at 368. They cited Liu only to support their argument that “the SEC will still be in

control of assets with an approximate value of $6,000,000, which is far more than an

amount that the SEC can obtain in disgorgement from Mr. Young.” Id. at 378. The

4 Appellate Case: 23-1339 Document: 60-1 Date Filed: 11/04/2024 Page: 5

court denied this motion, stating the Youngs had not shown “the funds requested are

untainted by the alleged underlying fraud” and had not refuted that “the assets

currently available will be insufficient to compensate the defrauded investors in this

case.” App., Vol. IV at 1141.

The Youngs appealed. We consolidated their appeal with appeals brought by

Mr. and Ms. Stewart and Mr. and Ms. Sewall of two orders denying their motions to

unfreeze assets. SEC v. Young, No. 21-1061, 2022 WL 2977080, at *3 (10th Cir.

July 28, 2022) (unpublished). We stated that we had jurisdiction under 28 U.S.C.

§ 1292(a)(1). Id. at *1.

On appeal, the Youngs argued:

(1) “The lower court applied an incorrect legal standard to the Youngs’ motion seeking limited relief from the asset freeze to pay counsel.”

(2) “Even in civil cases, a defendant has a constitutional Fifth Amendment right to retain counsel before the government deprives a defendant of all of his property permanently.”

(3) “The district court erred by failing to vacate or modify the prejudgment asset-freeze Order in light of the United States Supreme Court’s recent decision in Liu v. SEC, 140 S. Ct. 1936, 1950 (2020).” They argued, based on Liu:

a. “There is no statutory authority for the SEC to obtain a prejudgment asset freeze at all.”

b. “The Youngs are, at a minimum, entitled to a hearing to determine a proper estimate of the amount of a prejudgment asset freeze vis-à-vis their assets.”

5 Appellate Case: 23-1339 Document: 60-1 Date Filed: 11/04/2024 Page: 6

c.

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USSEC v. Mediatrix Capital, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ussec-v-mediatrix-capital-ca10-2024.