Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_13-cv-00319/USCOURTS-casd-3_13-cv-00319-4/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. 13cv319-GPC(BGS)

ORDER GRANTING PLAINTIFF’S

MOTION FOR

RECONSIDERATION

[Dkt. No. 87.]

vs.

ABS MANAGER, LLC and GEORGE

CHARLES CODY PRICE,

Defendants,

ABS FUND, LLC [ARIZONA]; ABS

FUND, LLC [CALIFORNIA];

CAPITAL ACCESS, LLC; CAVAN

PRIVATE EQUITY HOLDINGS,

LLC; and LUCKY STAR EVENTS,

LLC,

 Relief Defendants.

Before the Court is Plaintiff’s motion for reconsideration of the Court’s order

granting Defendants’ motion for partial summary judgment on the claims under the

Investment Advisers Act. (Dkt. No. 87.) An opposition was filed by Defendants on

August 15, 2014. (Dkt. No. 91.) A reply was filed on August 29, 2014. (Dkt. No. 93.) 

A hearing was held on September 19, 2014. (Dkt. No. 97.) Sam Puathasnanon, Esq.

and Lynn Dean, Esq. appeared on behalf of Plaintiff and Mark Chester, Esq. and John

Dolkart, Esq. appeared on behalf of Defendants. After a review of the briefs,

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supporting documentation, the applicable law, and the parties’ arguments, the Court

GRANTS Plaintiff’s motion for reconsideration. 

Background

On February 8, 2013, Plaintiff Securities and Exchange Commission (“SEC”)

filed a complaint against Defendants ABS Manager, LLC and George Charles Cody

Price, along with an ex parte application, without notice, for a temporary restraining

order (“TRO”) and order freezing assets; appointing a receiver over defendant ABS

Manager, LLC and the entities it controls and manages; prohibiting the destruction of

documents; granting expedited discovery; and requiring an accounting. (Dkt. Nos. 1,

2.) The SEC also filed an ex parte application, without notice, for an order temporarily

sealing the entire file until the asset freeze is served. (Dkt. No. 2.) On February 11,

2013, the Court denied Plaintiff's ex parte application for TRO and denied Plaintiffs’

ex parte application to temporarily file entire case under seal. (Dkt. No. 3.) On

February 19, 2013, Plaintiff filed a motion for preliminary injunction along with an ex

parte motion to shorten time for hearing on the motion for preliminary injunction. 

(Dkt. No. 5.) After briefing by both parties, on February 27, 2013, the Court granted

Plaintiffs’ ex parte motion and set the matter for hearing on March 15, 2013, which

was continued to March 19, 2013 after granting the parties’ joint motion to continue

the hearing date. (Dkt. Nos. 22. 24, 30.) On March 20, 2013, the Court granted

Plaintiff’s motion for preliminary injunction and for an order partially freezing assets

of ABS Manager and the Funds, preserving documents, and requiring an accounting

and denying Plaintiff’s motion for an order freezing all funds’ asset and personal assets

and order appointing a receiver. (Dkt. No. 31.) A preliminary injunction order was

filed on April 4, 2013. (Dkt. No. 35.) 

The complaint alleges violations ofsections 206(1) and 206(2) ofthe Investment

Advisers Act of 1940; violations of section 206(4) of the Investment Advisers Act of

1940 and Rule 206(4)-8; violations of section 17(a) of the Securities Act of 1933

(“Securities Act”); violations of section 10(b) of the Securities Exchange Act of 1934

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(“Exchange Act”) and Rule 10b-5; and violations of section 20(a) of the Securities

Exchange Act of 1934. (Dkt. No. 1.) 

On June 11, 2014, the Court denied Plaintiff’s motion for summary judgment on

all causes of action and granted Defendants’ motion for partial summary judgment on

the first two causes of action asto the SEC’s claims under the Investment Advisers Act

of 1940 (“IAA”). (Dkt. No. 81.) The Court granted Defendants’ motion holding that

an exception applied because Plaintiff failed to establish a genuine issue of material

fact that the exception under the Investment Advisers Act did not apply. See 15 U.S.C.

§ 80b-2(a)(11)(E). 

On July 9, 2014, Plaintiff filed a motion for reconsideration as to the Court’s

order granting Defendants’ motion for partial summary judgment on the claims under

the Investment Advisers Act. (Dkt. No. 87.) Defendants filed an opposition and

Plaintiff filed a reply. (Dkt. Nos. 91, 93.) 

A. Legal Standard on Motion for Reconsideration

A district court may reconsider a grant of summary judgment under either

Federal Rule of Civil Procedure (“Rule”) 59(e) or Rule 60(b). Sch. Dist. No. 1J,

Multnomah County, Or. v. AcandS, Inc., 5 F.3d 1255, 1262 (9th Cir. 1993). Plaintiff

moves for reconsideration pursuant to Rule 59(e) arguing that the Court “committed

clear error or the initial decision was manifestly unjust.” See id. at 1263. 

Federal Rule of Civil Procedure 59(e) provides for the filing of a motion to alter

or amend a judgment. Fed. R. Civ. P. 59(e). A motion for reconsideration, under

Federal Rule of Civil Procedure 59(e), is “appropriate if the district court (1) is

presented with newly discovered evidence; (2) clear error or the initial decision was

manifestly unjust, or (3) if there is an intervening change in controlling law.” Sch.

Dist. No. 1J, Multnomah County, Or., 5 F.3d at 1263; see also Ybarra v. McDaniel, 656

F.3d 984, 998 (9th Cir. 2011). 

In addition, Local Civil Rule 7.1(i)(1) providesthat a motion for reconsideration

must include an affidavit or certified statement of a party or attorney “setting forth the

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material facts and circumstances surrounding each prior application, including inter

alia: (1) when and to what judge the application was made, (2) what ruling or decision

or order was made thereon, and (3) what new and different facts and circumstances are

claimed to exist which did not exist, or were not shown upon such prior application.”

Local Civ. R. 7.1(i)(1). 

The Court has discretion in granting or denying a motion for reconsideration. 

Fuller v. M.G. Jewelry, 950 F.2d 1437, 1441 (9th Cir. 1991). A motion for

reconsideration should not be granted absent highly unusual circumstances. 389

Orange St. Partners v. Arnold, 179 F.3d 656, 665 (9th Cir. 1999). “A motion for

reconsideration cannot be used to ask the Court to rethink what the Court has already

thought through merely because a party disagrees with the Court’s decision. Collins

v. D.R. Horton, Inc., 252 F. Supp. 2d 936, 938 (D. Az. 2003) (citing United States v.

Rezzonico, 32 F. Supp. 2d 1112, 1116 (D. Az.1998)). 

B. Causes of Action under the Investment Advisers Act

Plaintiff argues that the exception Defendants rely on under the IAA does not

apply because Defendants provided advisory services and held themselves out to be

investment advisersfor both private and government-backed investments. Defendants

contend that the SEC is rearguing issues on summary judgment without providing any

“new” evidence and assert that the exemption applies because they did not provide

advisory services to non-agency bonds. 

In the Court’s order granting Defendants’ motion for partialsummary judgment, 

it concluded that Defendants are excluded from the definition of investment adviser

because they did not provide advisory services concerning non-agency private bonds. 

“Investment advisor” under the Investment Advisers Act includes a “person who,

for compensation, engages in the business of advising others, either directly or

indirectly . . . as to the advisability of investing in . . . securities. . . .” 15 U.S.C. §

80b–2(a)(11). A person is not an investment adviser when “(E) any person whose

advice, analyses, or reports relate to no securities other than securities which are direct

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obligations of or obligations guaranteed asto principal or interest by the United States,

or securities issued or guaranteed by corporations in which the United States has a

direct or indirect interest . . . .” 15 U.S.C. § 80b-2(a)(11)(E). 

The key argument in the motion for reconsideration is whether ABS Arizona

held one non-agency bond rendering the exception to not apply. 

In its motion for reconsideration, Plaintiff presents additional evidence, not

submitted before on the motion for summary judgment. Defendants represented to

their “due diligence” firm, Mick and Associates, that the non-agency bond was an

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asset of the ABS Arizona Fund. (Dkt. No. 87-2, Dean Decl., Ex. 1 at 6.) Defendants

stated that the bond was an “institutional bond” or “bank bond” and the “bond was

purchased from a consulting firm who sold it directly to [Arizona] ABS Fund. This

bond was added to the portfolio before ABS Fund had decided to invest only into

Agency bonds . . . . The PPM ABS Fund operates under allows of these types of bonds

to be placed into the fund. However, they are not the strategy of the fund.” (Id.) In

response, Defendants admit they created the document which was provided to Mick

and Associates, but it was not provided directly to the investors. In addition, Plaintiff

provided the account statements of three investors showing the Countrywide bond as

part of the investors’ portfolio. (Id., Exs. 2-5.) 

There was one non-agency bond held by ABS Arizona, the Countrywide bond

or CWALT 2005-J10 Class 1A14 with CUSIP No. 12668ABL8, which was an inverse

IO bond. (Dkt. No. 71-9, Weiner Decl. ¶¶ 2-5; Exs. 1-2.) The Countrywide bond was

purchased by Relief DefendantCavan Private EquityHolding,LLC in November 2008,

prior to the existence of the ABS Arizona Fund’s 2009 start up date and it was for

personal use and not intended to be purchased for the Fund. (Dkt. No. 76, CSAMF, Ex.

Plaintiff argues that it did not raise this evidence in the prior motion for

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summary judgment because the issue of ownership of the bond was not raised until

Defendants filed a reply. Plaintiff alleges that it intended to raise the evidence at the

motion hearing on the summary judgment motions but was unable to since the Court,

exercising its discretion, ruled without oral argument. Since Defendants presented new

evidence and argument in their reply, the Court will consider the additional evidence

Plaintiff provides in its motion for reconsideration. 

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A., Price Decl. ¶¶ 2, 3; see also Ex. 1.) All monies contributed by investors for all new

securities were used to purchase Agency CMOs. (Id., Price Decl. ¶ 4.) The nonagency bond was then transferred into ABS Fund Arizona in May 2009 as evidenced

from the statements of investors and held until April 2011. The ABS Fund Arizona

was first offered in March 2009 and sold units to about 13 or 14 investors for around

$2.4 million. (Dkt. No. 64-3, Dean Decl., Ex. 1 at 1.) The report to Mick and

Associates reveals that the Countrywide bond was considered an asset of ABS Arizona. 

Based on the evidence before the Court, Plaintiff has demonstrated a disputed

issue of fact regarding the ownership and management of the non-agency bond asset. 

There are also unresolved legal issues not briefed by the parties. There is a genuine

issue of fact as to how ABS Fund Arizona obtained the Countrywide bond. There are

also issues as to the effect of this acquisition and its effect on the other investor’s

money, and whether Defendants, who would have been exempt under the IAA at the

time ABS Arizona was established, can lose its exempt status by the acquisition of the

one non-agency bond a couple months later. There is also an issue as to whether it

matters that the investors’ monies were not used to purchase this bond. 

The Court also concluded that there was no advice provided by Defendants as

to the non-agency bond. The SEC alleges that Defendants provided advisory services

and held themselves out to be investment advisers for private and government-backed

investments. The SEC points to the PPM where it informed investors that the fund

intended to invest in non-agency bonds, the radio informercial called “The Wealth

Weekend Hours” which aired on KFMB Radio in San Diego and offered to perform

portfolio reviews for investors, and the fact that ABS Manager applied to be registered

as an investment adviser in California. Defendants argue that these do not constitute

advice as contemplated under the IAA. They also contend that at least two investors

stated that no one from ABS Manager represented themselves as investment advisers. 

(Dkt. No. 76, Ex. B, Chester Decl., Ex. 3, Nittoli Depo., 120:5-7; Ex. 2, Dewan Depo.

at 137:10-12.) 

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The SEC cites to Abrahamson where the Second Circuit held that the act of

“advising” is broader than communicating a recommendation to a client but investment

advisers can “advise” their customers by exercising control over what purchases and

sales are made with their clients’ funds.” Abrahamson v. Fleschner, 568 F.2d 862, 871

(2d Cir. 1977). “[P]eople who manage[ ] the funds of others for compensation are

‘investment advisers’ within the meaning of the statute.” Id. at 870; see also S.E.C. v.

Haligiannis, 470 F. Supp. 2d 373, 383 (S.D.N.Y. 2007) (same citing Abrahamson). 

One who “effectively controls” an investment advisory firm and its decisionmaking is

an investment advisor within the meaning of the Advisers Act. SEC v. Berger, 244 F.

Supp. 2d 180, 193 (S.D.N.Y. 2001). 

On the other hand, Plaintiffs cite to a later case of Goldstein v. SEC, 451 F.3d

873 (D.C. Cir. 2006) where the D.C. Circuit held that the SEC could not issue a

regulation specifying that hedge fund managersmust “count as clientsthe shareholders,

limited partners, members, or beneficiaries . . . of [the] fund” for purposes of the IAA. 

451 F.3d 873, 877, 883 (D.C. Cir. 2006). In Goldstein, the court explained that,

generally, a hedge fund manager’s client is the hedge fund itself, and not the investors

in the fund. Id. This is because the manager’s fiduciary duties are owed to the fund,

whose interests can diverge from those of the fund’s investors. Id.

Based on the parties’ arguments, the Court concludes there are genuine issues

of material fact as to whether Defendants provided advisory services asto non-agency

securities. Specifically, there is a genuine issue of material fact as to whether the ABS

Funds are investment partnerships with general and limited partners as described in

Abrahamson or are hedge funds as described in Goldstein. 

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On Plaintiff’s motion, the Court reconsiders its ruling and concludes that

Plaintiff has demonstrated a genuine issue of material fact as to the ownership of the

Even Defendants note the disputed fact stating that the “SEC is attempting to 2

equate the Fund with a publicly traded mutual fund that falls under the auspices of the

1940 Investment Company Act, even though the Fund is actually akin to a private

unregistered hedge fund.” (Dkt. No. 91 at 15.) 

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Countrywide non-agency bond and a genuine issue of material fact as to whether

Defendants were engaged in advisory services to the investors. 

Conclusion

Based on the above, the Court GRANTS Plaintiff’s motion for reconsideration

and DENIES Defendants’ motion for partialsummary judgment on the first two causes

of action for violations of the Investment Advisers Act. 

IT IS SO ORDERED.

DATED: December 17, 2014

HON. GONZALO P. CURIEL

United States District Judge

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