Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-00665/USCOURTS-caed-2_09-cv-00665-88/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.

 /

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

marshal and recover Equity Investment Management and Trading, Inc.

(“EIMT”) assets. On August 20, 2009, the court established a

standard for summary proceedings for the recovery of EIMT assets

by the Receiver. On December 11, 2009, the court clarified that it

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 are not held in constructive trust

for EIMT. Pursuant to this procedure, the Receiver has moved for

Case 2:09-cv-00665-JAM-KJN Document 366 Filed 10/27/10 Page 1 of 7
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the disgorgement of a Land Rover from Concettina Ferentz (“Ms.

Ferentz”). Ms. Ferentz opposes the motion.

I. BACKGROUND

This court appointed a Receiver to recover assets of 

EIMT. These assets are to be distributed to defrauded investors of

EIMT. Here, the Receiver moves to disgorge the Land Rover on the

grounds that defendant Vasallo transferred EIMT investor funds to

Jeff Dennis Ferentz (“Mr. Ferentz”), who is now deceased, a portion

of which was ultimately used for the purchase of a Land Rover, that

is currently registered in the name of Mr. Ferentz’s widow, Ms.

Ferentz. Ms. Ferentz contests the disgorgement of the Land Rover,

maintaining that the Receiver’s argument that the Land Rover is

held in constructive trust for the benefit of the EIMT investors

is flawed. Specifically, Ferentz claims that no constructive trust

exists as to the Land Rover, or, in the alternative, that the trust

cannot be extended to her because she had no knowledge of her

husband’s business activities, including how he purchased the

vehicle.

This motion was initially set to be heard on October 12, 2010.

Ms. Ferentz failed to timely file an opposition. Rather, at 5:20

p.m. on the business day before the hearing, her counsel filed a

declaration requesting a continuance. The court granted a thirteen

day continuance, and cautioned Ms. Ferentz that if she failed to

file an opposition by 9:00 a.m. on October 18, 2010, the court will

consider her failure to timely file as non-opposition to the motion

for disgorgement. Ms. Ferentz filed her opposition at 3:56 p.m. on

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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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October 18, 2010.

II. STANDARD

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

standard summary proceeding procedure for Receiver’s recovery of

EIMT’s assets. ECF 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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III. ANALYSIS

In its motion, the Receiver traced EIMT funds to Mr.

Ferentz. He then, demonstrated that some of these funds were

used by Mr. Ferentz to purchase the Land Rover at issue for Ms.

Ferentz. Ms. Ferentz raises two arguments in opposition to the

Recievers’ motion. Both are insufficient. 

A. Whether Ms. Ferentz is Entitled to Discovery

Ms. Ferentz contends that she cannot properly defend

herself in this motion without joinder of the Estate of Mr.

Ferentz. Ms. Ferentz contends that joinder is necessary for her

to mount a defense. Specifically, she argues that Mr. Ferentz

may have “a viable claim for consideration for services

rendered,” and thereby the money used to purchase the Land Rover

was not wrongfully appropriated. She highlights that the Joint

Venture Agreement between Mr. Ferentz and two other individuals

in his group with defendant Vassallo attached to the Receiver’s

declaration is unsigned. While not ideal, the unsigned agreement

does not defeat the Receiver’s claim for a constructive trust.

Even without the agreement, the Receiver has presented evidence,

that is unchallenged by Ms. Ferentz, that Vassallo transferred

two million dollars to Mr. Ferentz and that Mr. Ferentz then

used part of that money to purchase the Land Rover. The Receiver

has not sought discovery from Mr. Ferentz’s law office of his

billing statements and other materials relating to his

acquisition of EIMT funds because he has determined that the

bank statements demonstrate that Mr. Ferentz did not invest the

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money on behalf of EIMT, but rather immediately distributed the

money into numerous accounts, from which personal expenses were

drawn.

The question of whether Mr. Ferentz did not wrongfully

appropriate the funds, however, is far more difficult.

Resolution would require the court to determine whether the

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

find that Land Rover is not held in constructive trust for EIMT.

Ms. Ferentz has not presented any evidence in support of this

contention. Under the terms of the summary proceedings order,

Ms. Ferentz could be entitled to discovery on this issue only if

she demonstrates good cause. Further, when considering whether

Ms. Ferentz has demonstrated good cause, the court may consider

whether she has acted in good faith. 

Here, Ms. Ferentz’s counsel was in communication with

counsel for the Receiver for at least four months. During this

time, the Receiver made its intention to recover the Land Rover

on behalf of the EIMT investors. At no time did Ms. Ferentz

contend that Mr. Ferentz did not wrongfully appropriate the

funds used to purchase the vehicle. Nor did she argue that the

Receiver must discover these records from Mr. Ferentz’s law firm

to determine whether a constructive trust is in effect. Further,

the actions of Ms. Ferentz’s counsel before this court appear to

consist of delay tactics. First, his very late-filed request for

a continuance did not demonstrate good cause for his failure to

timely apply for admission to the Eastern District of California

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or inability to find local counsel who could appear on his

behalf. Second, despite this court’s explicit instruction for

Ms. Ferentz to file her opposition by 9:00 a.m. on October 18,

2010, she nonetheless filed her opposition nearly seven hours

late. This conduct may well suggest that Ms. Ferentz is not

acting in good faith, but rather seeking to further delay

disgorgement of the Land Rover.

Moreover, even if Ms. Ferentz is acting in good faith, she

has failed to demonstrate good cause for the discovery she

seeks. The Receiver has demonstrated, and Ms. Ferentz does not

challenge, that Vassallo transferred $2 million of EIMT funds to

Mr. Ferentz. Mr. Ferentz then distributed this money into

several bank accounts from which he and others paid their own

personal expenses, including the purchase of the Land Rover. Mr.

Ferentz’s business records cannot change these facts. It is

inconceivable that Mr. Ferentz invested the $2 million on behalf

of EIMT investors when he used some of the funds to make

personal purchases. Thus, Ms. Ferentz is not entitled to

discovery on this issue.

B. Whether a Constructive Trust Exists

Second, Ms. Ferentz contends a constructive trust does not

extend to the Land Rover because she lacks knowledge of her

former husband’s allegedly wrongful activity. Ms. Ferentz,

however, does not argue that she purchased the vehicle for

value. Rather, she testified that she registered, insured, and

maintained the Land Rover after Mr. Ferentz’s death. 

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[W]here property has been obtained by fraud, a court

in equity “has jurisdiction to reach the property

either in the hands of the original wrong-doer, or in

the hands of any subsequent holder” and to convey that

property to “the one who is truly and equitably

entitled to the same.” Harris Trust & Sav. Bank v.

Salomon Smith Barney, Inc., 530 U.S. 238, 251 (2000)

(quoting Moore v. Crawford, 130 U.S. 122, 128 (1889)).

“Importantly, that a transferee was not ‘the original

wrongdoer’ does not insulate him from liability for

restitution.” Id. If, however, an innocent third-party

transferee purchases ill-gotten assets for value, in

good faith, and without actual or constructive notice

of the wrongdoing, the third-party transferee cannot

be held liable for restitution and the assets are not

the proper subject of a constructive trust. Id. Known

as the bona fide purchaser rule, this exception grants

an innocent transferee a higher right to the obtained

assets than the victim of the original fraud. 

F.T.C. v. Network Servs. Depot, Inc., 617 F.3d 1127, 1142 (9th

Cir. 2010) (emphasis added). Here, the vehicle was in

constructive trust because it was purchased with wrongfully

obtained EIMT funds. Ms. Ferentz is not a bona fide purchaser

because she has not demonstrated that she purchased the vehicle

for value. Thus, this argument does not preclude disgorgement of

the Land Rover.

IV. CONCLUSION

For the foregoing reasons, the court GRANTS the Receiver’s

Motion to Disgorge, ECF No. 334, and hereby ORDERS that Ms.

Ferentz disgorge the Land Rover to the Receiver within twenty

(20) days of the issuance of this order.

IT IS SO ORDERED.

DATED: October 26, 2010.

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