United States District Court, N.D. California, San Jose Division
ORDER GRANTING PLAINTIFF'S MOTION TO REAPPOINT SPECIAL MASTER Re: Dkt. No. 180
EDWARD J. DAVILA, District Judge.
Within this civil enforcement action brought by Plaintiff Securities and Exchange Commission ("SEC"), presently before the court is the SEC's Motion to Reappoint the Special Master to assume additional responsibilities concerning Relief Defendant GLR Growth Fund (the "Fund"). See Docket Item No. 180. Two of the three individual defendants, Christopher A. Luck ("Luck") and Keith E. Rode ("Rode"), have filed written opposition to the motion. See Docket Item No. 187. Having carefully considered the briefing along with the parties' arguments at the hearing on April 2, 2015, the court has determined that the SEC's request is appropriate under the circumstances.
Accordingly, the Motion to Reappoint the Special Master will be granted for the reasons explained below.
A. The Civil Enforcement Action
According to the SEC's Amended Complaint, Defendants John A. Geringer ("Geringer"), Luck and Rode formed the Fund in 2003. They also formed GLR Capital Management, LLC ("GLR Capital"), which acted as the Fund's general partner. Geringer, Luck and Rode were the members of GLR Capital, and each occupied a different role in relation to the Fund. Geringer managed the Fund and directed its securities investments, Luck identified private company investments, and Rode kept the Fund's accounting records.
From 2005 through 2012, Geringer raised over $60 million for the Fund from private investors. But rather than investing these contributions in the manner represented, the SEC alleges that Geringer, Luck and Rode instead mismanaged the Fund by transferring significant amounts to companies held by them and misrepresenting the performance, strategy, and diversification of the Fund in marketing materials. Indeed, rather than the 17 to 25% annual return described in the marketing materials, the Fund's trading actually produced negative returns in every year from 2005 to 2009. In addition, the Fund's assets were not invested according to the strategy disclosed to investors. Instead, more and more of the Fund's money was invested in two private startup companies and not in securities, options, and commodities.
The SEC alleges that Geringer created false brokerage documents in order to hide the Fund's poor performance from investors. It further alleges that Luck and Rode assisted in the cover-up after the Fund's true condition was revealed to them by Geringer in 2009. Luck continued to solicit new investors and Rode prepared false periodic account statements.
B. The Criminal Action
On December 20, 2012, Geringer, Luck and Rode were indicted by a federal grand jury on charges of conspiracy, mail fraud, wire fraud, securities fraud and money laundering for their involvement with the Fund. All three defendants eventually pled guilty to fraud charges between June and December, 2014. Luck has since been sentenced and is scheduled to surrender in April, 2015. Geringer and Rode await sentencing.
II. LEGAL STANDARD
A federal court may appoint a special master to "address pretrial and posttrial matters that cannot be effectively and timely addressed by an available district judge or magistrate judge of the district." Fed.R.Civ.P. 53(a)(1)(C). The types of matters referred to a special master may include "duties that might not be suitable for a judge, " such as the "administration of an organization." Fed.R.Civ.P. 53, Advisory Committee Notes (2003 Amendments), Subdivision (a)(1).
Whether or not a special master should be appointed is a discretionary decision for the court. See Burlington N. R.R. Co. v. Dep't of Revenue, 934 F.2d 1064, 1071-72 (9th Cir. 1991). However, a special master appointment "is restricted to situations where they are necessary to aid judges in the performance of specific judicial duties, as they may arise in the progress of a cause" and ...