Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_13-cv-00319/USCOURTS-casd-3_13-cv-00319-0/pdf.json

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

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

CASE NO. 13cv319-GPC(JMA)

ORDER DENYING PLAINTIFF’S

EX PARTE APPLICATION FOR A

TEMPORARY RESTRAINING

ORDER; AND DENYING

PLAINTIFF’S EX PARTE

APPLICATION TEMPORARILY

SEALING ENTIRE FILE 

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.

On February 8, 2013, Plaintiff Securities and Exchange Commission filed a complaint along

with an ex parte application for a temporary restraining order (“TRO”) 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. The SEC also

filed an ex parte application for an order temporarily sealing the entire file until the asset freeze is

served or until February 26, 2013, whichever is sooner. Defendants were not served with the

Complaint, ex parte applications or any supporting documents. The Court decides the matters on the

- 1 - [13cv1319-GPC(JMA)]

Case 3:13-cv-00319-GPC-BGS Document 3 Filed 02/11/13 Page 1 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

papers and without oral argument. See Civ. Local R. 7.1(d)(1). Based on the reasoning below, the

Court DENIES Plaintiff’s ex parte application for TRO to freeze assets, appoint a receiver, prohibit

the destruction of documents; expedite discovery and require an accounting. The Court also DENIES

Plaintiffs’ ex parte application to temporarily file entire case under seal. 

Background

According to the Complaint, Defendant George Charles Cody Price (“Price”), through his

unregistered investment advisory company, Defendant ABS Manager, LLC (“ABS Manager”), raised

about $18.8 million dollars from about 35 investors nationwide to invest in three funds - Relief

Defendants ABS Fund, LLC in Arizona (“ABS Fund”), ABS Fund, LLC in California (“Platinum

Fund”), and Capital Access, LLC in Nevada (“Capital Access Fund”). (Compl. ¶ 2.) 

For each fund offering, Defendants distributed a private placement memorandum, (“PPM”),

which described the terms of each Fund’s offering. (Id. ¶ 22.) Starting in March 2009, Defendants

first offered investment in the ABS Fund. (Id. ¶ 23.) ABS Fund’s PPM stated that the proceeds from

its offering would be used to purchase collateralized mortgage obligations (“CMOs”). (Id.) CMOs

are mortgage based securities that pay the investors, depending on the “class” or “tranche” of CMO

they hold, the cash flows generated from the principal and interest payments on a pool of mortgages. 

(Id. ¶ 3.) However, the Funds did not buy ordinary CMOs but bought “Interest Only (“IOs”) and

“Inverse Interest Only” (“Inverse IOs”) CMO tranches. (Id. ¶ 4.) These types of CMOs are among

the riskiest forms of CMOs. (Id.) They only receive interest payments from the underlying mortgages

and not the principal. (Id.) As the mortgages in the pool are prepaid, paid down, re-financed or

defaulted, the interest-only income stream from those mortgages stop. (Id.) 

In order to attract investors, Defendants claims that these securities were “very safe”, “very

secure” and “government bonds.” (Id.) They falsely represented to the investors that the Funds were

“performing” “at or better” than 12-18% during this time and that the IOs and Inverse IOs held by the

Funds generated “returns” of 12.5% and 18%. (Id. ¶ 5.) 

In 2010, 2011 and 2012, the IOs and Inverse IOs that the Funds owned lost significant value. 

(Id.) Their annual returns never exceeded 3% and some investments had a return of negative 2%. (Id.) 

Moreover, the Funds were only required to pay a management fee to ABS Manager if their

- 2 - [13cv1319-GPC(JMA)]

Case 3:13-cv-00319-GPC-BGS Document 3 Filed 02/11/13 Page 2 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

returns exceeded 12.5% or 18%. (Id. ¶ 6.) No fees should have ever been paid during this period

because the actual annual returns never exceeded 3%. (Id.) However, Defendants caused the Funds

to pay Price and ABS Manager about a half a million dollars of Fund Assets during this time. (Id.) 

Moreover, a substantial portion of it was distributed to Defendants Cavan Private Equity Holdings,

a company owned by Price, and Lucky Star Events, LLC, a company owned by Price’s wife. (Id.) 

Lastly, in radio shows and in the PPM for the Funds’ offerings, Defendants misrepresented

Price’s professional experience and grossly inflated the amounts of funds under management. (Id. ¶

7.)

In the Complaint, Plaintiff alleges violations of sections 206(a) and 206(2) of the Investment 

Advisors Act of 1940; violation of section 206(4) of the Investment Advisors Act of 1940 and Rule

206(4)-8; violations of section 17(a) of the Securities Act of 1933; violations of section 10(b) of the

Securities Exchange Act of 1934 and Rule 10b-5; and violations of section 20(a) of the Securities

Exchange Act of 1934.

Discussion

The purpose of a TRO is to preserve the status quo before a preliminaryinjunction hearing may

be held; its provisional remedial nature is designed merely to prevent irreparable loss of rights prior

to judgment. Granny Goose Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers, 415 U.S.

423, 439 (1974). The legal standard that applies to a motion for a TRO is the same as a motion for a

preliminary injunction. See Stuhlbarg Int'l Sales Co. v. John D. Brush & Co., 240 F.3d 832, 839 n.

7 (9th Cir. 2001). To obtain a TRO or preliminary injunction, the moving party must show: (1) a

likelihood of success on the merits; (2) a likelihood of irreparable harm to the moving party in the

absence of preliminary relief; (3) that the balance of equities tips in the moving party's favor; and (4)

that an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20

(2008).

Under the Ninth Circuit’s “sliding scale” approach, the first and third elements are to be

balanced such that “serious questions” going to the merits and a balance of hardships that “tips

sharply” in favor of the movant are sufficient for reliefso long as the other two elements are also met.

Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134–35 (9th Cir. 2011). A preliminary

- 3 - [13cv1319-GPC(JMA)]

Case 3:13-cv-00319-GPC-BGS Document 3 Filed 02/11/13 Page 3 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

injunction is “an extraordinary remedy that may only be awarded upon a clear showing that the

plaintiff is entitled to such relief,” Winter, 555 U.S. at 22, and the moving party bears the burden of

meeting all four Winter prongs. See Cottrell, 632 F.3d at 1135; DISH Network Corp. v. FCC, 653

F.3d 771, 776–77 (9th Cir. 2011). 

A. Ex Parte Application for TRO Without Notice to Defendants

Plaintiff seeks an ex parte TRO to freeze assets, appoint a receiver, prohibit the destruction of

documents, grant expedited discovery, and require an accounting without notice to Defendants. 

Federal Rule of Civil Procedure 65(b)(1) provides that a “court may issue a temporary

restraining order without written or oral notice to the adverse party or its attorney only if: (A) specific

facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss,

or damage will result to the movant before the adverse party can be heard in opposition; and (B) the

movant’s attorney certifies in writing any efforts made to give notice and the reasons why it should

not be required.” Fed. R. Civ. P. 65.

The United States Supreme Court has held that there are stringent restrictions imposed byRule

65 because “our entire jurisprudence runs counterto the notion of court action taken before reasonable

notice and an opportunity to be heard has been granted both sides of a dispute.” Granny Goose Foods,

Inc. v. Brotherhood of Teamsters & Auto Truck Drivers Local No. 70 of Almeda County, 415 U.S.

423, 438-49 (1974). “[C]ircumstances justifying the issuance of an ex parte order are extremely

limited.” Reno Air Racing Ass’n v. McCord, 452 F.3d 1126, 1131 (9th Cir. 2006). There are “a very

narrow band of cases in which ex parte orders are proper because notice to the defendant would render

fruitless the further prosecution of the action.” Id. (quoting American Can Co. v. Mansukhani, 742

F.2d 314, 322 (7th Cir. 1984)). For example, to justify an ex parte proceeding where an alleged

infringer is likely to dispose of the infringing goods before the hearing, the “applicant must do more

than assert that the adverse party would dispose of evidence if given notice.” Id. (citation omitted). 

“[P]laintiffs must show that defendants would have disregarded a direct court order and disposed of

the goods within the time it would take for a hearing . . . [and] must support such assertions by

showing that the adverse party has a history of disposing of evidence or violating court orders or that

persons similar to the adverse party have such a history.” Id. (citation omitted). 

- 4 - [13cv1319-GPC(JMA)]

Case 3:13-cv-00319-GPC-BGS Document 3 Filed 02/11/13 Page 4 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Here, Plaintiff has not addressed or complied with the ex parte provision under Federal Rule

of Civil Procedure 65. In its application, Plaintiff states “Defendants may destroy evidence of their

violations and ongoing fraud.” (P’s Memo. of Ps & As at 23.) No declaration, even from counsel, has

been filed to support this assertion. Moreover, Plaintiff must assert more than a conclusory allegation

that Defendants may dispose of evidence. See McCord, 452 F.3d at 1131. The specific TRO relief

sought all relate to preventing further dissipation and misappropriation of the investors’ assets. 

Accordingly, the Court DENIES Plaintiff’s ex parte application for TRO to freeze assets, appoint a

receiver, prohibit the destruction of documents, grant expedited discovery, and request an accounting. 

Plaintiff also filed an ex parte application to temporarily seal the case until the asset freeze is

served or until February 26, 2013, whichever occurs first. Since the Court denied Plaintiff’s ex parte 

application for TRO, Plaintiff’s request to temporarily file the entire case under seal is also DENIED. 

Conclusion

Based on the above, the Court DENIES Plaintiff’s ex parte application for temporary

restraining order to freeze assets, appoint a receiver, prohibit the destruction of documents; grant

expedited discovery; and request an accounting. The Court also DENIES Plaintiff’s ex parte

application to temporarily file the entire case under seal.

IT IS SO ORDERED.

DATED: February 11, 2013

HON. GONZALO P. CURIEL

United States District Judge

- 5 - [13cv1319-GPC(JMA)]

Case 3:13-cv-00319-GPC-BGS Document 3 Filed 02/11/13 Page 5 of 5