The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge
Plaintiff moves for summary judgment on its claims that Defendant Kimberly Snowden ("Snowden") engaged in a fraudulent scheme in violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Exchange Act Rule 10(b)-5), and registration requirements in Sections 5 of the Securities Act of 1933. Plaintiff also seeks an order permanently enjoining Snowden from violating these anti-fraud and registration provisions, and an order requiring her to disgorge her "ill-gotten" gains. (Pl. Mot. at 2:24.) Plaintiff further requests partial final judgment be entered against Snowden under Federal Rule of Civil Procedure 54(b).
Snowden failed to timely oppose the motion. Snowden filed a motion to stay this action, which was denied. Lastly, Snowden's counsel has moved for an order allowing him to withdraw as attorney of record for Snowden.
Non-Controverted Factual Showing "Starting no later than 2001, Snowden, Donald F. Neuhaus ("Neuhaus"), Secure Investment Services, Inc. ("SIS"), American Financial Services, Inc. ("AFS"), and Lyndon Group, Inc. ("Lyndon Group")(collectively the "corporate defendants" or individually as "corporate defendant"), operated a business of offering and selling fractionalized interests in life insurance policies, an investment called 'bonded life settlements' or 'bonded senior settlements.'" (Plaintiff's Statement of Facts "SOF" ¶ 1.) Snowden and Neuhaus (her father)used the corporate defendants to operate the business at various times. (Id. ¶ 2.) "Defendants fractionalized and sold 52 policies to approximately 660 investors in over 20 states and obtained approximately $31.1 million in investor proceeds. The combined total return promised to investors was approximately $51.8 million." (Id. ¶ 3.)
Internet websites, advertisements, mailings, and seminars were used to solicit investors and communicate with them. (Id. ¶ 4.) Defendants acquired the life insurance policies from brokers by paying a fraction of the policy's face amount. (Id. ¶ 5.)
As the investment was structured and represented to investors by Defendants, when the insured on the policy died, each investor would receive a return in the form of a pro rata share of the policy death benefit that equaled the investor's original investment plus a profit. (Id. ¶ 6.) For the insured on each policy, Defendants provided investors with a purported life expectancy estimate purportedly prepared by a physician. (Id. ¶ 7.) These estimates typically projected that the insured would die in six years or less. (Id. ¶ 8.) Many of the investments were purportedly "bonded." (Id. ¶ 9.)
As the investment was structured and represented to investors by Defendants, if the insured outlived the life expectancy, then, after a waiting period of 3 to 12 months, the bonding company would pay each investor an amount equal to the share of the policy death benefit the investor would otherwise receive from the insurance company upon the death of the insured. (Id. ¶ 10.) Defendants provided investors with copies of the bonds. (Id. ¶ 11.) Once a policy was sold to investors, premiums on the policy had to be paid to prevent it from lapsing before the insured passed away, a lapse being an event that would cause the insurance company to not pay policy benefits. (Id. ¶ 12.)
Snowden served as an officer and director for each corporate defendant and "also as the Director of Operations and Controller for the business." (Id. ¶ 13.) Additionally, "Snowden maintained the financial records for the business, including a "QuickBooks' accounting software that recorded money flows into and out of the business; she exercised control over the bank accounts used in the business; and she wrote most of the checks to pay policy premiums." (Id. ¶ 14.)
Snowden signed agent agreements with sales agents who typically solicited investors. (Id. ¶ 15.) Also, Snowden herself offered and sold the investment directly to investors. (Id. ¶ 16.)
To effect their investments, investors signed purchase agreements between them and one of the corporate defendants. (Id. ¶ 17.) Snowden signed purchase agreements. (Id. ¶ 18.)
After sales were completed, Snowden signed letters to investors acknowledging receipt of their purchase agreements and their investments and stating the returns the investors would receive. (Id. ¶ 19.)
Snowden knew that when a policy was sold to investors, the corporate defendants should have set aside a portion of those investors' purchase funds that was sufficient to pay future premiums on the policy for the period of the life expectancy plus the waiting period. (Id. ¶ 20.) Snowden represented to investors both orally and in writing that funds would be set aside in this manner. (Id. ¶ 21.)
The purchase agreements typically contained the following representations to investors of which Snowden was familiar, and she signed purchase agreements containing the quoted representations ("typical purchase agreement language"):
a. "All of the following costs associated with the purchase of an interest of [sic] a policy are included in the investment amount: . . A premium payment for a minimum of one year beyond the projected life expectancy of the insured, or until the policy is purchased by the bonding company, whichever comes first."
b. "SIS [or another corporate defendant] may escrow funds for future premium payments for a minimum of twelve (12) months beyond the projected life expectancy of the insured, or longer at SIS's discretion . . ."; and
c. "Future premiums, for a minimum of the life expectancy of the insured plus twelve (12) months, or longer at the [sic] SIS's discretion, shall be paid by SIS . . ." (Id. ¶ 22.)
The corporate defendants were responsible for paying policy premiums through the life expectancy and the waiting period. (Id. ¶ 23.) Snowden was familiar with the terms of the purchase agreements. (Id. ¶ 24.) Snowden signed purchase agreements with the representations in paragraph 22 above. (Id. ¶ 25.) In fact, future premiums were not "included in the investment amount" paid by investors because Defendants commingled investor funds immediately upon receiving them and used them to pay premiums on any policy they ...