Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-00665/USCOURTS-caed-2_09-cv-00665-109/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.

 /

The Receiver in this Securities and Exchange Commission

(“SEC”) enforcement action has submitted a letter (not a noticed

motion), asking the court to “issue an order directing [Kyle

Wunderli, a person in bankruptcy] to provide the Receiver a full

accounting of the funds he received from Equity/Investment

Management and Training, Inc. ("EIMT"). The Receiver makes this

letter request “pursuant to the expedited procedure authorized by

the Court’s order of June 5, 2009.”

The June 5, 2009 order, however, applies only to

Case 2:09-cv-00665-JAM-KJN Document 438 Filed 10/25/11 Page 1 of 5
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 E.g. Dkt. No. 94 (Order Permitting Receiver to open 1

account).

 E.g., Dkt. Nos. 134 (Order Authorizing Receiver to engage 2

attorneys); 217 (same); and 429 (same).

 E.g., Dkt. Nos. 200 (Order Approving Receiver’s report); 389 3

(same); and 411 (same).

 E.g., Dkt. No. 201 (Order Granting Receiver’s application 4

for fees and costs); and 412 (same).

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“consideration and resolution of Receiver’s applications regarding

receivership administration issues.” Dkt. No. 83 at 2 (emphasis

added). Receivership administration issues include permitting the

Receiver to open bank accounts and engage attorneys, approving 1 2

interim Receiver reports, granting the Receiver fees and costs, 3 4

and the like.

The order the Receiver is requesting in this case is

substantive. The Receiver’s letter asks the court to make a

finding that Wunderli – a non-party in bankruptcy – put $500,000

into the EIMT, and that he received $1.5 million in "phony" profits

out of it. The letter asks that the court issue an order

compelling Wunderli “to provide to Receiver a full investor

accounting of the funds he received from EIMT.” The Receiver wants

this information because Wunderli claims that he paid out the

$1.5 million to certain investors, and the Receiver wants to

proceed against those investors. These requests are a part of the

substantive process of marshaling the assets of the company in

receivership, and they are predicate to seeking disgorgement

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 The Receiver argues that the law permits him to pursue 5

discovery against Wunderli despite his proceeding in bankruptcy,

so long as he is only looking for assets from third parties, citing

Groner v. Miller (In re Miller), 262 B.R. 499 (9th Cir. BAP 2001).

The Receiver may well be correct about that, but he is not only

seeking discovery from Wunderli. He is also asking for an

adjudication (without notice or an opportunity to be heard), that

Wunderli, the bankrupt, “transferred $500,000 to EIMT to be traded

using the” EIMT scam, and that Wunderli “received payments from

EIMT in the amount of $1,524,712.44.” And, the Receiver does not

provide the court with any evidence in support of this assertion.

Instead, the Receiver asserts only that he “has been working

diligently to locate and marshal assets” of EIMT.

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from Wunderli’s non-party investors.5

But there is a procedure for marshaling EIMT’s assets and for

issuing orders to non-parties. On August 20, 2009, the court

issued an order establishing a summary procedure for the Receiver’s

“Pursuit of [EIMT’s] assets.” Dkt. No. 116. That order was issued

in order “to marshal and recover EIMT assets in an expeditious and

cost-effective manner.” That is the procedure that applies, and

it calls for notice and an opportunity to be heard.

It is this notice and opportunity to be heard that justifies

the use of the summary procedure in the first place. In upholding

the use of this type of summary proceeding, the Ninth Circuit has

relied on the fact that the district courts have afforded the nonparty from whom disgorgement is sought, substantially all of the

procedural and evidentiary protections that would be provided in

a plenary proceeding. See CFTC v. Topworth Intern., Ltd., 205 F.3d

1107, 1113 (9th Cir. 1999) (“for the claims of nonparties to

property claimed by receivers, summary proceedings satisfy due

process so long as there is adequate notice and opportunity to be

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 The Ninth Circuit has recognized “a truncated form of 6

process vis-a-vis ‘a non-party depository as a nominal defendant

to effect full relief in the marshaling of assets that are the

fruit of the underlying fraud.’” SEC v. Ross, 504 F.3d 1130, 1141

(9th Cir. 2007); SEC v. Wencke, 783 F.2d 829 (9th Cir.)

(confirming the district court’s authority to use summary

disgorgement proceedings, initiated by the receiver, to marshal

investor assets – namely, defrauded investor funds – in the hands

of non-parties), cert. denied sub nom. DeLusignan v. Gould, 479

U.S. 818 (1986); SEC v. Colello, 139 F.3d 674 (9th Cir. 1998)

(authorizing SEC recovery of defrauded investor funds from nonculpable “nominal defendants”). 

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heard”); SEC v. Vassallo, 2010 WL 3835729 at *2 (E.D.

Cal. September 29, 2010) (Karlton, J.) (unpublished) (citing

Topworth).

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Going forward, the Receiver shall not be permitted to use the

June 5, 2009 procedure to obtain orders outside the administration

of the receivership. In this case, the Receiver wants an

accounting from a non-party. The Receiver should use the summary

procedures set forth in the August 20, 2009 order.

For the foregoing reasons:

(1) The Receiver’s letter request (Dkt. No. 430) for an

accounting from Kyle Wunderli is DENIED without prejudice to its

renewal pursuant to the August 20, 2009 summary procedures; and

(2) Going forward, the Receiver shall not use the June 5, 2009

letter procedure for matters outside the administration of the

receivership. “Administration” matters subject to the June 5, 2009

Order include the opening and closing of bank accounts, the

engagement of attorneys, submissions of Receiver reports, requests

for granting Receiver fees and costs, and the like. Matters that

relate to identifying and marshaling the assets of EIMT, are

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subject to the summary procedures order of August 20, 2009. Such

matters include requests for disgorgement, requests for orders

compelling action by non-parties (or parties), and requests for

accountings, disclosures of financial records, and the like.

IT IS SO ORDERED.

DATED: October 25, 2011.

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