Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-00665/USCOURTS-caed-2_09-cv-00665-41/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

NO. CIV. S-09-0665 LKK/DAD

Plaintiff,

v.

O R D E R

ANTHONY VASSALLO, KENNETH

KENITZER, and EQUITY 

INVESTMENT MANAGEMENT AND

TRAINING, INC.,

Defendants.

 /

ARCANUM EQUITY FUND, LLC and

VESTIUM MANAGEMENT GROUP, LLC,

parties in interest.

 /

On July 31, 2009, this court appointed a permanent Receiver

to marshal and recover Equity Investment Management and Trading,

Inc. (“EIMT”) assets. On August 20, 2009, this court established

a standard for summary proceedings for the recovery of EIMT assets

by the Receiver. Pursuant to this procedure, the Receiver has moved

for the disgorgement of funds from Arcanum Equity Fund, LLC

(“Arcanum”) and Vestium Management Group, LLC and/or Vestium

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Management Group, LLC (collectively “Vestium”). Both parties oppose

the motion.

I. BACKGROUND

This court appointed a Receiver to recover assets of 

EIMT. These assets are to be distributed to allegedly defrauded

investors of EIMT. Here, the interested parties contest not whether

the court should order disgorgement of funds, but rather the amount

of funds to be disgorged. Specifically, the Receiver claims that

Arcanum and Vestium should disgorge $2,403,197.41 and Arcanum and

Vestium argue that the proper amount is $265,568.22. Most of the

discrepancy in the amounts derives from a conflict between the

profits Arcanum and Vestium reported and Arcanum’s and Vestium’s

current assertions of losses. 

The remaining cause for the vastly different amounts of money

the Receiver and Arcanum and Vestium believe they owe EIMT is the

significance of alleged actions taken by defendant Vassallo.

Specifically, Vassallo signed a release that states, “In

consideration of the sum $1,200,000.00 (One Million Two Hundred

Thousand USD) received from Vestium, remitted to Veritas . . . no

later than January 13, 2009 . . . Veritas and EIMT release and

discharge Vestium and Arcanum . . . from all debts . . . .” Exhibit

D to Opposition. Additionally, Arcanum and Vestium have presented

some evidence that Vassallo instructed them to wire $972,000 to

Phlorian Racing and the Spirit Foundation as partial redemption of

a $1,330,000 loan. 

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 The court notes that the court may consider whether an 1

interested party acted in good faith when determining whether there

is good cause for discovery.

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II. STANDARD OF REVIEW

On August 20, 2009, the court issued an order establishing a

standard summary proceeding procedure for Receiver’s recovery of

EIMT’s assets. Doc. No. 116. This order set forth the procedure for

disgorgement claims for these assets. First, the Receiver shall

file a noticed motion for disgorgement and serve said motion upon

all interested parties. Interested parties may file an opposition

brief, in response to which the Receiver may file a reply brief.

The order also provides that, “Upon a showing of good cause, the

Court may order limited discovery concerning the particular asset.”

Additionally, if “the Court determines there is a disputed

issue(s) of fact concerning the disgorgement of a particular asset,

the Court shall set an evidentiary hearing to resolve the

issue(s).” According to this standard, the court may only grant a

motion for disgorgement where material facts are in dispute if the

record as a whole could not lead a rational trier of fact to find

that the assets at issue are not held in constructive trust for

EIMT, or more specifically, for the receivership of EIMT assets.

This cannot be decided based upon whether an interested party acted

in good faith in its communications with the Receiver. When the 1

Receiver cannot meet this burden, the court shall order an

evidentiary hearing to resolve any disputed facts.

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 The court is also ordering an evidentiary hearing on the 2

motion to order disgorgement of $2.0 million transferred to Michael

Callahan ("Callahan") and Matthew Tucker, Doc. No. 172. Callahan

opposed this motion. As here, the court cannot resolve the motion

without an evidentiary hearing. The transactions at issue in

Callahan are somewhat related to those at issue here. For these

reasons, Judge Drozd shall confer with parties for both motions and

determine at his discretion whether to hold separate or combined

evidentiary hearings.

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III. ANALYSIS

Parties contest numerous questions of fact. Mainly, they

contest the amount of money Vestium and Arcanum owe EIMT.

Accordingly, the court orders an evidentiary hearing to resolve

these issues. First, the hearing will address whether there was

consideration for the release signed by Vassallo. Second, the

hearing will address whether Vassallo was the authorized agent for

the EIMT subfunds at the time the release was entered and at the

time that $972,000 was allegedly wired to Phlorian Racing and the

Spirit Foundation. Thirdly, the hearing will address the amount of

money owed to EIMT in light of both the previous two questions and

the issues of reported profits and actual losses raised in parties’

briefs. Finally, the hearing will address any remaining factual

disputes identified by the parties as to the amount of EIMT assets

Arcanum and Vestium must disgorge to the Receiver. 

IV. CONCLUSION

For the foregoing reasons, the court orders that the

evidentiary hearing is referred to Magistrate Judge Dale A.

Drozd pursuant to Local Rule 302(a). Judge Drozd will confer

with Vestium, Arcanum, Michael Callahan, and the Receiver, and 2

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set a date and time for the hearing or hearings as well as

entertain any motions demonstrating good cause to conduct

limited discovery.

IT IS SO ORDERED.

DATED: December 11, 2009.

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