Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_04-cv-00163/USCOURTS-casd-3_04-cv-00163-3/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

CASE NO. 04cv163-IEG(WMc)

Order Granting in Part Defendant’s

Motion to Stay Civil Contempt

Proceedings

vs.

PRESTO TELECOMMUNICATIONS, INC.,

AND ALFRED LOUIS VASSALLO, JR. aka

BOBBY VASSALLO,

Defendants.

This matter is presently before the Court on the motion filed by Defendant Alfred Louis

Vassallo, Jr. (“Vassallo”) to stay the civil contempt proceedings until the criminal charges against

him are resolved. Upon consideration of the parties’ arguments, for the reasons explained herein,

the Court GRANTS IN PART Vassallo’s motion.

Background

By order filed October 26, 2010, the Court found there was clear and convincing evidence

Vassallo violated the August 23, 2005 permanent injunction in this case by failing to pay

disgorgement, civil penalties, and the Receiver’s costs. The Court bifurcated the SEC’s

allegations that Vassallo had violated the permanent injunction by engaging in conduct in violation

of federal securities laws, and referred that matter to the United States Attorney for prosecution of

criminal contempt under Fed. R. Crim. P. 42 and 18 U.S.C. § 401. The government has not yet

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filed charges based on that referral. In addition, the government is conducting an investigation to

determine whether to file independent criminal conspiracy charges against Vassallo, in either this

District or the Central District of California, based upon conduct relating back to the Presto

Telecommunica-tions fraud in 2004 and earlier. 

Legal Standard

“The Constitution does not ordinarily require a stay of civil proceedings pending the

outcome of criminal proceedings.” Keating v. OTS, 45 F.3d 322, 324 (9th Cir. 1994). However,

the court may exercise its discretion to stay a civil proceeding “when the interests of justice seem

[to] require such action.” SEC v. Dresser Indus., 628 F.2d 1368, 1375 (D.C. Cir. 1980).

The strongest case for deferring civil proceedings until after completion of criminal

proceedings is where a party under indictment for a serious offense is required to

defend a civil or administrative action involving the same matter. The noncriminal

proceeding, if not deferred, might undermine the party’s Fifth Amendment

privilege against self-incrimination, expand rights of criminal discovery beyond the

limits of Federal Rule of Criminal Procedure 16(b), expose the basis of the defense

to the prosecution in advance of trial, or otherwise prejudice the case.

Id. at 1376.

In determining whether to stay the civil proceedings in the face of a parallel criminal

proceeding, the first consideration is “the extent to which the defendant’s fifth amendment rights

are implicated.” Keating, 45 F.3d at 325 (citing FSLIC v. Molinaro, 889 F.2d 899, 902 (9th Cir.

1989)). The court should also consider the following factors:

(1) the interest of the plaintiffs in proceeding expeditiously with the litigation or

any particular aspect of it, and the potential prejudice to plaintiffs of a delay; (2) the

burden which any particular aspect of the proceedings may impose on defendants;

(3) the convenience of the court in the management of its cases, and the efficient

use of judicial resources; (4) the interests of persons not parties to the civil

litigation; and (5) the interests of the public in the pending civil and criminal

litigation.

Keating, 45 F.3d at 325.

Discussion

Vassallo argues the Court should stay these civil contempt proceedings because he is

unable to demonstrate his inability to pay the amounts set forth in the permanent injunction

without waiving his Fifth Amendment rights. Vassallo is facing incarceration as the certain penalty

for his civil contempt, and the only way he could purge himself of that contempt would be to

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waive his Fifth Amendment rights. Under these circumstances, and considering the other Keating

factors, Vassallo argues a stay is appropriate.

1. Vassallo’s Fifth Amendment right

In order to avoid a finding of civil contempt, Vassallo has the burden of demonstrating he

is currently unable to comply with the permanent injunction. United States v. Bright, 596 F.3d

683, 695 (9th Cir. 2010). The SEC argues Vassallo has not demonstrated that his Fifth Amendment

rights would be implicated if he submits evidence of his inability to pay the amounts as ordered. 

“The Fifth Amendment ‘can be asserted in any proceeding, civil or criminal, ...; and it

protects against any disclosures which the witness reasonably believes could be used in a criminal

prosecution or could lead to other evidence that might be so used’.” United States v. Bodwell, 66

F.3d 1000, 1002 (9th Cir. 1995) (quoting Kastigar v. United States, 406 U.S. 441, 444-45 (1972)). 

“The standard for determining whether a claim of privilege is justified is ‘whether the claimant is

confronted by substantial and real, and not merely trifling or imaginary, hazards of

incrimination’.” United States v. Vavages, 151 F.3d 1185, 1192 (9th Cir. 1998) (quoting United

States v. Rubio-Topete, 999 F.2d 1334, 1338 (9th Cir. 1993)). Although a witness ordinarily must

assert the Fifth Amendment privilege in response to specific questions, the court may permit a

blanket assertion of the privilege if, based on its knowledge of the case and the expected

testimony, the court concludes “the witness could legitimately refuse to answer essentially all

relevant questions.” United States v. Flores-Blanco, 623 F.3d 912, 918 (9th Cir. 2010). 

Here, the criminal contempt proceeding is based upon the SEC’s allegation that Vassallo

has engaged in the following conduct: (a) offering for sale and selling unregistered securities,

(b) misrepresenting his ownership and control of companies for which he is soliciting investor

funds, and further misrepresenting the potential for investor profits and how investor funds will be

used, and (c) misappropriating investor funds. [Notice of Criminal Contempt Proceedings, Doc.

974, pp. 2-3.] Vassallo argues any explanation by him as to why he has not paid anything over the

last five years is damaging to his criminal case because he will be forced to address the SEC’s

allegation that he has made nearly $400,000 during that time period from “illicit” conduct. 

The SEC responds by arguing Vassallo has earned at least $27,000 in the last year from

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non-fraudulent activities. [Declaration of James P. Varley, filed October 26, 2010, ¶4.] Vassallo

has not demonstrated how producing information regarding that legitimate income would be

incriminating. In addition, the SEC cites several cases for the proposition that Vassallo can choose

whether to invoke his Fifth Amendment privilege, and his choice does not require this Court to

stay the contempt proceeding. See SEC v. Brown, 2007 U.S. Dist. LEXIS 98410 (D. Minn. July

16, 2007) (where defendant had been notified he was a target of a grand jury investigation, district

court denied defendant’s motion to stay SEC civil enforcement action, finding defendant failed to

demonstrate the issues presented in the civil and the as-yet to be filed criminal cases overlapped);

IBM v. Brown, 857 F. Supp. 1384, (C.D. Cal. 1994) (in RICO action, district court denied

defendant’s motion to stay the civil action pending resolution of pending criminal proceedings

stemming from the same transactions alleged by IBM in its civil complaint, finding the corporate

defendants enjoyed no Fifth Amendment privilege and the individual defendants already testified

at deposition without asserting the Fifth Amendment privilege). 

However, the cases cited by the SEC are distinguishable from the present proceedings. 

The Court is persuaded that Vassallo has properly asserted the Fifth Amendment privilege in this

civil contempt proceeding, because nearly all the answers Vassallo could provide regarding his

inability to pay the disgorgement, civil penalties, and receiver’s costs, could be used against him in

the criminal contempt proceeding. Even an exculpatory explanation as to why Vassallo has failed

to pay anything as ordered would provide the government with discovery with regard to the

criminal contempt proceeding, to which the government is not entitled under Fed. R. Crim. P. 16.

Vassallo’s assertion of the Fifth Amendment privilege weighs heavily in favor of granting a stay of

the civil contempt proceeding until such time as the criminal contempt is resolved. In each of the

cases relied upon by the SEC, the defendant faced only the threat of monetary loss. Here, the

Court has already made clear that the only realistic civil contempt sanction it could impose is

incarceration. Thus Vassallo’s assertion of his Fifth Amendment right may result in his

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The IRS summons cases cited by the SEC are also distinguishable. In both United States v. Rylander, 460

U.S. 752, 758 (1983) and CFTC v. Wellington Precious Metals, 950 F.2d 1525 (11th Cir. 1992), the courts held that a

contemnor must go beyond the mere assertion he is unable to comply with an order, and establish he has in good faith

made all reasonable efforts to comply. In neither case did the contemnor claim a Fifth Amendment right to remain

silent in the face of a pending concurrent criminal proceeding. 

5 04cv163

incarceration, and leave him without means to purge himself of his contempt.1

2. Other Keating factors

Notwithstanding Vassallo’s assertion of his Fifth Amendment privilege, many of the other

Keating factors militate against granting a stay. As set forth above, the additional factors a court

should consider in deciding whether to stay a civil action are as follows:

(1) the interest of the plaintiffs in proceeding expeditiously with the litigation or

any particular aspect of it, and the potential prejudice to plaintiffs of a delay; (2) the

burden which any particular aspect of the proceedings may impose on defendants;

(3) the convenience of the court in the management of its cases, and the efficient

use of judicial resources; (4) the interests of persons not parties to the civil

litigation; and (5) the interests of the public in the pending civil and criminal

litigation.

Keating, 45 F.3d at 325. The second factor, burden on defendant, favors granting a stay. In

addition, the third factor, convenience of the court and efficient use of judicial resources,

somewhat favors a stay because of the potential for overlapping issues between the civil and

criminal proceedings.

The first, fourth, and fifth factors, however, all favor going forward with the civil contempt

proceeding. The SEC, third-party investors, and the public, all have a strong interest in moving

forward expeditiously with the civil contempt proceeding, to attempt to recover the disgorgement,

civil penalties, and receiver’s costs. Presto investors who were defrauded by Vassallo have been

waiting for years for some portion of their money to be returned, and the receiver has been waiting

for years to be compensated for his fees and costs. The government cannot criminally prosecute

every violation of federal securities laws. The SEC must have a mechanism to not only obtain

judgment against those who defraud investors, but also the ability to collect upon that judgment. If

the SEC is unable to enforce its judgment against Vassallo by means of this civil contempt

proceeding, the SEC, the investors, and the public are effectively left without a civil remedy.

Vassallo argues the looming criminal charges would necessarily include restitution to the

victims. However, there is no currently pending criminal indictment encompassing the Presto

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Telecommunications fraud. The pending criminal contempt proceeding pertains only to Vassallo’s

conduct after entry of the Preliminary Injunction. Therefore, that criminal contempt proceeding

would not address Vassallo’s liability for defrauding investors prior to 2004. Government counsel

has represented to the Court and to defense counsel that there is an ongoing investigation which

may result in an independent indictment against Vassallo for conduct including the Presto

telecommunications fraud. Any such charges, however, are speculative at this time. 

 Balancing Vassallo’s Fifth Amendment privilege against the other Keating factors, the

Court concludes it would be appropriate to stay this civil contempt proceeding for a brief period of

time, to allow the government to further explore whether it intends to seek an independent

indictment against Vassallo, or to proceed solely based upon the parallel criminal contempt

charge. If the government decides not to pursue an independent indictment encompassing the

underlying Presto Telecommunications fraud, the Court believes it may be possible to move

forward on the civil contempt proceeding notwithstanding a parallel criminal contempt charge. To

alleviate Vassallo’s Fifth Amendment concerns, and to avoid providing discovery to the

government on the criminal contempt charge, the Court may be able to receive evidence ex parte.

The SEC may also decide it prefers to move forward on the civil contempt and have the criminal

contempt dismissed at this point. The Court will stay this case for a brief period of time to allow

these matters to be more fully investigated by counsel.

Conclusion

The Court stays this civil contempt proceeding pending further order of the Court. On or

before Monday, February 14, 2011, the government and SEC must each file a status report with

the Court, ex parte and/or under seal as may be appropriate, indicating how the government and

SEC intend to proceed with regard to the civil contempt, criminal contempt, and any independent

criminal charges against Vassallo. The Court will hold a further hearing, or issue a further ruling

on Vassallo’s motion to stay, following receipt of the status reports.

IT IS SO ORDERED.

DATED: December 17, 2010

IRMA E. GONZALEZ, Chief Judge

United States District Court

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