Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

United States Securities and Exchange Commission v. ISC, Inc.

United States District Court, W.D. Wisconsin

October 20, 2016

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
ISC, INC., d/b/a INSURANCE SERVICE CENTER, and THE ESTATE OF LOREN W. HOLZHUETER, Defendants, and HONEFI, LLC, ARLENEHOLZHUETER, and AARON HOLZHUETER, Relief Defendants.

          OPINION & ORDER

          JAMES D. PETERSON District Judge

         This case is in its final stages, and five motions are before the court. First, plaintiff the United States Securities and Exchange Commission, defendant the Estate of Loren W. Holzhueter, and relief defendants Honefi, LLC and Arlene Holzhueter have moved for entry of consent and final judgments against the Estate, Honefi, and Arlene Holzhueter. Dkt. 145. Second, defendants' counsel, Kravit, Hovel & Krawczyk, SC (KHK), has moved for accrued, unpaid attorney fees and costs, to be paid from the funds the court currently holds in its registry. Dkt. 151. Third, the SEC has moved the court to appoint a receiver to oversee a two-phase distribution of assets to the defrauded investors. Dkt. 159. Fourth, the state court plaintiffs have moved to intervene. Dkt. 163. And finally, the SEC, defendants, and relief defendants have moved to temporarily stay six related state-court actions, until the court has the opportunity to rule on all pending motions. Dkt. 186.

         The parties largely agree that a receiver should oversee the distribution of assets to the investors. But the court must decide two issues that will affect the receivership. Over the SEC's objection, the court will allow defendants' attorneys to recover a portion of their unpaid attorney fees and costs during phase I of the distribution proceedings. And because the state court plaintiffs will have the opportunity to be heard during the distribution proceedings, the court will deny their motion to intervene. The court will also stay the pending state-court cases. With these outstanding objections resolved, the court will enter the unopposed consent judgments and a receivership order, which the court has modified to reflect the decisions made in this order.

         RELEVANT BACKGROUND

         The SEC initiated this enforcement action against Loren W. Holzhueter and ISC, Inc. on January 21, 2015. Dkt. 1. On January 28, 2015, the court entered a temporary restraining order (TRO) against defendants. Dkt. 20. The TRO remains in effect and provides, in relevant part, that “defendants and each of their officers, agents, servants, employees, and those persons in active concert or participation with them . . . are hereby prohibited from . . . making any interest or principal payments to investors, pending the resolution of this action or further order of this court.” Id. at 3-4. The TRO froze defendants' assets. Id. at 4-5.

         On November 2, 2015, the court granted the parties' joint motion for entry of partial judgment against defendants and entered consent judgments against ISC and the Estate of Loren W. Holzhueter. Dkts. 79-81. The consent judgments provide, in relevant part, that defendants will “pay disgorgement of ill-gotten gains and prejudgment interest thereon; that the amounts of the disgorgement and civil penalty [ISC only] shall be determined by the Court upon motion of the Commission; and that the prejudgment interest shall be calculated from the date the ill-gotten gain was obtained[.]” Dkt. 80, at 3 and Dkt. 81, at 1. Neither defendant admitted or denied the allegations at issue.

         On November 18, 2015, the court granted the parties' joint motion to deposit Loren W. Holzhueter's life insurance proceeds with the court. Dkt. 86. The assets remain frozen and will be available to “satisfy any agreement reached by the parties to this case or any remedy ordered by the Court.” Id. at 3.

         On June 20, 2016, the parties filed an unopposed motion for entry of consent and final judgments against the Estate and relief defendants Honefi, LLC and Arlene Holzhueter. Dkt. 145. Relief defendant Aaron Holzhueter has also agreed to resolve the SEC's claims against him by voluntarily consenting to entry of judgment, but those terms are subject to approval by the bankruptcy court in Holzhueter's Chapter 11 case, No. 16-13134 (Bankr. W.D. Wis. filed Sept. 12, 2016). Dkt. 145 and Dkt. 182. These parties have agreed to satisfy their disgorgement obligations by relinquishing to the SEC: (1) the life insurance proceeds currently held in the court's registry; and (2) ownership and other interests in ISC and Honefi. Upon entry of these consent judgments, the SEC will commence the distribution phase of this case.

         The SEC intends to distribute defendants' ill-gotten gains in two phases, via receiver. First, the receiver will distribute the life insurance proceeds and other liquid assets to injured investors, pro rata based on net principal loss (i.e., the total amount invested less any repayments the investor received). Second, the receiver will distribute the proceeds from any sale of ISC, Honefi, or their assets to all remaining creditors. The SEC believes that a third-party receiver will be best equipped to oversee the sale of ISC, Honefi, and their assets and, in the interim, oversee operations to preserve their value. The SEC envisions that the receiver would serve several roles:

(1) maintaining custody of all Disgorgement Funds prior to the final distribution . . .; (2) drafting and submitting Distribution Plans for the Preliminary and Secondary Distributions; (3) overseeing the notice and claims process, including by assessing the validity of any disputed claims and determining the appropriate amount a claimant should receive . . .; (4) serving as Receiver over ISC and Honefi for the purpose of completing arm's length sales of those entities, and/or their assets for the benefit of investors (and creditors); (4) [sic] entering into a consent judgment on behalf of ISC that would be satisfied upon termination of the receivership[;] and (5) to the extent necessary, authorizing the retention of professionals to meet any tax reporting requirements concerning the distribution.

Dkt. 148, at 5-6.

         ANALYSIS As this case enters its distribution phase, the parties are, for the most part, on the same page. All agree that the court should enter the proposed consent judgments against the Estate, Honefi, and Arlene Holzhueter. The court will enter those judgments shortly. And it appears that all agree that the court should appoint a third-party receiver to oversee the next steps. But before the court enters its order appointing a receiver, it must address whether defendants' counsel, Kravit, Hovel & Krawczyk, SC (KHK), may collect unpaid attorney fees and costs during phase I of the distribution proceedings, and whether the state court plaintiffs may intervene in this case.

         A. KHK's motion for attorney fees and costs

         During most of this litigation, KHK's bills have been paid by ISC, subject to the approval of David Omachinski, the independent monitor that the court appointed to oversee ISC's operations. But, in Mr. Omachinski's judgment, ISC does not have the resources to continue paying KHK's bills, and it will not be able to do so in the foreseeable future. KHK's total fees and costs have been ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.