Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_14-cv-00347/USCOURTS-casd-3_14-cv-00347-5/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1332sa Diversity: Securities &amp; Exchange Commiss

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE 

COMMISSION, 

Plaintiff, 

v. 

JAMES Y. LEE, et al., 

Defendant.

Case No.: 14cv347-LAB (BGS)

ORDER DENYING AS MOOT 

MOTION FOR EXTENSION OF 

TIME; 

ORDER GRANTING MOTIONS

TO EXCEED PAGE LIMITS; 

ORDER GRANTING MOTION 

FOR DISBURSEMENT OF 

FUNDS;

ORDER GRANTING IN PART 

MOTION TO FREEZE ASSETS; 

ORDER GRANTING MOTION 

FOR ORDER TO SHOW CAUSE; 

AND

ORDER OF REFERENCE

[Docket numbers 162, 166, 

168, 169, 174, 179.] 

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Motions Filed

This is one of three related civil cases, the other two being 14cv542-BGS, 

Ayers v. Lee; and 14cv1737-LAB (BGS), SEC v. Lee. In a criminal case, United 

States v. Lee, 14cr2937-BEN, Defendant James Y. Lee pled guilty to obstruction 

of justice; specifically, he admitted engaging in false, fraudulent, and deceptive 

conduct to hinder the United States from collecting on the criminal judgment and 

executing the sentence imposed in an earlier case, United States v. James Yiu 

Lee, et al., 95cr41-MMC (N.D. Cal. 1995). On May 21, 2015 he was sentenced to 

78 months’ imprisonment plus three years’ supervised release.

In this case, the Court entered judgment in favor of Plaintiff Securities and 

Exchange Commission (SEC), ordering Lee to pay $2,203,025.95 plus interest, 

and ordering and Relief Defendant Larissa Ettore (“Ettore”) to pay $463,484.95 

plus interest. The SEC has filed a motion representing that they both refuse to 

pay, and asking the Court to hold them in contempt. The motion also asks the

Court to freeze all of Lee’s and Ettore’s assets and those held by certain third 

parties; requiring them both to provide the SEC with a full accounting of their 

assets; and requiring them to enter into installment payment orders with the SEC. 

(Docket no. 162.) A flurry of briefing from both sides followed. (See Docket nos. 

163–86.) 

In addition to moving for an order to show cause, the SEC moved for an 

order for disbursement of garnished funds (Docket no. 166), and an order freezing 

the assets of both Lee and Ettore. The SEC’s motions were supported by 

numerous authenticated exhibits.

Lee’s motion for extension of time to file a response to the SECs motion 

(Docket no. 168) is DENIED AS MOOT. Five days after filing it, he filed a response 

to the motion (Docket no. 172), which is accepted as filed. 

/ / /

/ / /

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Lee’s and Ettore’s motion (Docket no. 174) and the SEC’s motion (Docket 

no. 179) to exceed page limits are GRANTED and those documents are accepted 

as filed.

Discussion

Lee by way of settlement consented to entry of judgment against him and 

agreed to pay $2,203,025.95 plus interest. (Docket no. 80.) He also consented to 

the magistrate judge’s retention of jurisdiction over his settlement agreement 

(Docket no. 80-1), as did the SEC. (Docket no. 80.) On July 15, 2016, the Court 

entered final judgment against him, and he did not appeal. 

After a careful investigation, the Court granted the SEC’s motion for 

terminating sanctions against Ettore for her bad faith and willful misbehavior that 

imposed unfair and unnecessary delays and costs on the SEC. (Docket no. 101.) 

Specifically, she failed to appear, then with a potential default judgment looming, 

she made an appearance and, after asking for more time, represented that she 

was ready to go forward. The Court, while finding her neglect of the case 

inexcusable, denied default judgment. (Docket no. 65.) After that, however, she 

engaged in willful and bad faith obstructionist tactics. (Docket no. 101 (adopting 

report and recommendation).) The Court entered judgment against her as a

sanction. (Docket nos. 102, 103.) She took an appeal, which she then abandoned, 

and judgment became final on August 3, 2017. (See Docket no. 107.) In sum, her 

pattern of behavior has been to avoid disgorgement of ill-gotten gains by engaging 

in a pattern of delay, obstruction, and bad faith.

These matters have already adjudicated, judgment is final, and there is no 

reason to revisit them. To the extent Lee’s and Ettore’s briefing calls into question 

any of the Court’s earlier orders or findings, reconsideration is denied. 

Because the Court has already ordered disgorgement, it is sitting in equity 

here. As such, it has broad discretion to fashion appropriate relief. See SEC v. 

World Capital Market, Inc., 864 F.3d 996, 1003 (9th Cir. 2017) (citing 15 U.S.C. 

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' 78u(d)(5) (authorizing any equitable relief that may be appropriate for the benefit 

of investors). See also SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1474 

(2d Cir. 1996) (“Once the district court has found federal securities law violations, 

it has broad equitable power to fashion appropriate remedies.”) This includes, for

example, freezing assets even of non-parties. See SEC v. Hickey, 322 F.3d 1123,

1131–32 (9th Cir. 2003). 

The usual rules of jurisdiction apply here. For example, a party or claimant—

or a putative claimant—must establish standing. See Watkins v. Peterson

Enterprises, Inc., 57 F. Supp. 2d 1102, 111112 (E.D. Wash. 1999) (citing Lujan v.

Defenders of Wildlife, 504 U.S. 555, 560 (1992)) (holding that defendant, who was 

not a garnishee defendant, lacked standing to raise garnishee defendants due 

process rights). Personal jurisdiction is required as well, but only to the extent the 

Court is exercising in personam jurisdiction. Where the Court is exercising in rem

jurisdiction, the Court need not obtain personal jurisdiction over non-parties, even 

if they might claim an interest in the property. See United States v. Real Property, 

135 F.3d 1312, 1316–17 (9th Cir. 1998) (record owner of property over which the 

Court was exercising in rem jurisdiction had not joined as a party, and lacked 

standing to challenge forfeiture).

The SEC has presented substantial evidence. While Lee and Ettore have 

requested oral argument, they have not provided any evidence nor pointed to any 

they would like to present. But Lee and Ettore filed multiple documents in 

opposition to the SECs three motions, however (see Docket nos. 172, 173, 175, 

176, 177, 184, 185), and to exceed the ordinary page limit. (See Docket nos. 174.) 

The Court finds they have had ample opportunity to make their arguments, and 

oral argument is not needed. See Civil Local Rule 7.1(d)(1).

Motion for Disbursement of Funds

Following judgment, the SEC obtained writs of garnishment, using them to 

garnish property held in four financial institutions. According to the motion, Ettore 

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was conducting business using three of her family members as Nominees: her 

mother Ulla Ettore, her father Roger Ettore, and her brother Timo Ettore. As 

discussed below, exhibits attached to the SECs motion for contempt show that 

Ettore and/or Lee were deeply involved in managing and controlling the Nominees 

accounts. The motion does not accuse the Nominees of any wrongdoing; it merely 

argues that they were in possession of funds to which they have no claim, which 

was fraudulently transferred into accounts held in their names.1 See World Capital 

Market, 864 F.3d at 1003 (citing SEC v. Ross, 504 F.3d 1130, 1141 (9th Cir. 2007))

(identifying such persons as nominal defendants).

The financial institutions each answered the writs, saying that they held 

property in the name of one or more Nominees, but not Ettore. Other than this, 

the financial institutions have taken no position, and do not challenge the 

garnishment or any of the motions.

Although the individual Nominees were all given notice, they did not request 

a hearing, seek to exempt the funds, or object to the garnishment. None of the 

three sought leave to intervene, expressed any interest in claiming the property.

Nor have they appeared in this action in any other way. Instead, counsel for Ettore 

and Lee filed an objection claiming to be preparing an objection on their behalf. 

(See Docket no. 173.) The objection itself only identifies Defense counsel as 

representing Ettore and Lee, however, not the three Nominees.1 Although the 

briefing is filed in both Lee’s and Ettore’s name, it does not identify the interest of 

/ / /

 

1 The motion to freeze assets, by contrast, suggests that because the contempt 

motion put Ettore and lee on notice of the SEC’s investigation, the Nominees and 

other third parties may be engaging in efforts to shield assets from collection. But 

this is only a suggestion, not an accusation. The SEC apparently has no 

information suggesting that the Nominees are deliberately working together with 

Ettore and Lee, as opposed to being mere pawns or dupes.

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either as being at stake here, nor do they identify any injury they would suffer if the 

funds were disbursed.

Ettore and Lee filed two more objections to the motion for disbursement of 

funds, all purporting to be acting in the interest of the Nominees. (Docket nos. 175, 

177.) But the fact is, even though the Nominees were served and knew about the 

Motion, they have never appeared either pro se or through counsel, and have 

given no indication that they oppose the motion or are claiming the garnished 

property. In all three responses, counsel claim to be representing Ettore and Lee 

only, and have never signed on behalf of or otherwise indicated they were actually 

representing the Nominees. Only one of the Nominees Timo Ettore, was ever 

named in any of the three related cases, and he was dismissed before making an 

appearance.

The objections prove too much. Ettore and Lee deny the SECs charge that 

the garnished property is actually their own and not in fact the Nominees. 

Inexplicably, however, they are the only ones objecting. The Nominees whose 

property they claim it is, appear to have no interest in it. They have not retained 

counsel or, it would appear, authorized Defense counsel to represent them in this 

case. Nor have they appeared pro se or in any other way tried to assert a claim to 

the garnished property. Although their briefing makes a show of protecting the 

Nominees due process and property rights, neither Ettore nor Lee have shown 

they have standing to assert the Nominees’ rights. And if, as they claim, the

garnished property is not in fact theirs, they have no claim on it themselves. In 

other words, the only way Ettore and Lee can have standing to object to 

disbursement of the garnished funds is if they own them. But if they do, their 

argument fails on the merits.

The only argument Ettore and Lee have raised in their objections is premised 

on the contention that the funds belong to the Nominees; they deny that the funds 

belong to them. Although they were given notice and an opportunity to be heard, 

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the Nominees have made no claim the funds. Although Ettore and Lee argue that 

the Nominees need the money to live on, that is the purpose of seeking an 

exemption. Under Cal. Code Civ. Proc. '' 703.520 and 703.030(a), a claimant’s 

failure to file a claim of exemption within ten days after notice of levy on the 

property waives the exemption and the property is subject to enforcement of a 

money judgment. While the Court can relieve a claimant of the failure to claim an

exemption, nothing in the briefing suggests any reason to do so. Even accepting, 

arguendo, Lee’s and Ettore’s argument that the Nominees are the real owners, the 

Nominees have waived their claims.

Lee’s and Ettore’s briefing also inaccurately characterizes the SEC’s motions 

as indirectly seeking to hold the Nominees in contempt and punishing them by 

seizing their assets. In fact, the SEC’s arguments characterize the Nominees as 

mere nominal account holders who were being used as pawns by Lee and Ettore, 

not as active participants or true owners. The evidence bears out the SEC’s 

characterization.

The SEC’s exhibits show that Lee was trading in equities from prison using 

the Nominees’ names and accounts, with Ettore’s help. Larissa Ettore and/or Lee 

were opening accounts in the Nominees’ names for their own benefit, and 

accessing the Nominees’ accounts. The SEC’s Exhibit 8 to the motion for order to 

show cause demonstrates the degree of control they were exercising over the 

Nominees accounts. For example, Ettore emailed Lee in prison asking him, 

among other things, how Roger’s mortgage modification and Optionshouse 

account applications should be filled out. (Ex. 8 at 135.) She asks questions such 

as what income to list for him on the application, and what field to say he works in. 

(Id.) She also asks Lee how much money she should be withdrawing daily from

her joint account. In his responsive email, Lee asks her for the paperwork and 

advises her to withdraw $150 per day from her account. (Id. at 136.) Not long 

after, Lee emailed Ettore further instructions for modifying her parents’ mortgage 

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in order to save money so they could build the account up with the balance 

transfers to [Optionshouse]. (Id. at 137.) He also instructs her how much money 

to give her parents each month. (Id.) In later emails, Ettore updated Lee on the 

status of her investment accounts and he responds with advice; detailed

instructions; and requests for spreadsheets, bank balances and account 

information, her parents’ FICO scores, spreadsheets for Timo, and other financial 

documents and data consistent with management of her and her parents’ finances. 

(Id. at 138–42, 145–48, 152, 154.) Among other things, in August of 2017 he said 

asked her to transfer $10,000 from a Wells Fargo joint account to a Wells Fargo 

personal account, and then to Bank of America. (Id. at 147–50.) He engaged in 

similar email interchanges with Relief Defendant Lolita Gatchalian. (Id. at 143–44, 

151.) 

In these emails, Ettore refers to the two Wells Fargo accounts and the Bank 

of America account as “my bank balances,” and the accounts as hers. (Ex. 8 at 

147–48.) Although more apropos of the motion for contempt, the exhibits also

show she was not short of cash. For instance, she was leasing a BMW until at 

least November of 2017 (Ex. 11) and sold a condominium for $240,000 in July of 

2017. (Ex. 12.)

During this same time period, other documents show other substantial 

transfers and expenditures. (Exs. 13–14.) She also held a joint Wells Fargo 

account with Ulla (Ex. 17) In short, the exhibits show Lee and Ettore exercising a 

high degree of control over passive Nominees and their accounts and investments. 

The tone and content of the communications show the Ettore was sending Lee the 

Nominees financial information, and that Lee was making decisions and feeding 

instructions to Ettore, who in turn carried them out. There is no suggestion that 

the Nominees’ involvement was required, or that their own preferences or interests 

played any important role.

/ / /

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Lee and Ettore object to the emails’ authenticity, but the Court finds that the 

declaration of Christy White adequately authenticates them. Because the emails 

are admissions of party opponents, they are not hearsay. As to this evidence, the

objections are overruled.

The Court finds the SEC has shown that the garnished accounts were in 

effect the property of Lee and Ettore, even if they were nominally held in others’

names. The Nominees have not claimed the funds or attempted to do so, and have 

waived any claim they might have. Lee and Ettore have no standing to raise claims 

or objections on their behalf. The motion to disburse the garnished funds is 

GRANTED and the Court will issue a separate order granting relief.

Motion to Freeze Assets

The Court’s equitable powers include freezing the assets of parties and even 

non-parties who are dominated and controlled by a party against whom 

disgorgement has been ordered. Hickey, 322 F.3d at 1131–32. The SEC asks 

the Court to impose an asset freeze on Larissa Ettore and James Lee, and also 

on third parties they believe these two are using to hide or transfer funds. Those 

third parties are the Nominees named above (Ulla, Roger, and Timo Ettore), plus 

Lee’s associate Relief Defendant Lolita Gatchalian, Lee’s ex-wife Jean Lee, and 

any other entity through which they are acting. The motion correctly characterizes 

this as a broad freeze.

As with the motion to disburse funds, only Ettore and Lee have filed anything. 

They have no standing to object on behalf of others or to represent others’ interests 

in this action. Nevertheless, when exercising its equitable powers, the Court 

considers whether granting the relief is necessary and fair. So the failure of the 

Nominees, Jean Lee, and Gatchalian have not filed an opposition does not by itself 

require the Court to grant the motion.

The SEC’s evidence shows good reason to believe that Larissa Ettore and 

James Lee have been attempting to hide or transfer assets away from themselves, 

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and freezing their assets—including any assets held in common with third parties, 

such as joint accounts—is very appropriate.

As for the others, however, the evidence is more speculative. The motion 

does not explain why—apart from the garnished accounts discussed above—there 

is reason to believe the three Nominees have received assets from Lee and Ettore,

or if they have, that they would knowingly work in concert with them to dissipate or 

otherwise shield those assets. The available evidence suggests only that Ettore 

is controlling accounts to which their names are attached. 

The motion for contempt offers some explanation as to the two other third 

parties, however. It points out evidence that Jean Lee is trading at Lee’s direction, 

but the evidence does not clearly show she is trading with Lee’s money. The 

evidence suggests she is executing trades on behalf of Lee and a third party 

identified by the pseudonym “TM,” which the SEC believes is Tim Nguyen. But 

there is little to suggest that Jean herself is holding assets for Lee. If the SEC has 

evidence that Jean or “TM” (Tim Nguyen or anyone else) is holding assets for Lee, 

it can proceed directly against that person, or garnish that person’s accounts. But 

at present there is little to suggest that freezing all of Jean’s assets is necessary.

The argument for freezing Lolita Gatchalian’s assets is stronger. She was 

one of the three relief defendants against whom terminating sanctions were issued, 

and there is evidence she was working with Lee after judgment was entered 

against him but before judgment was entered against her. But the SEC identifies 

no evidence she worked with him after that. She was ordered to disgorge 

$82,394.08, but has paid either all or nearly all that amount as ordered. The SEC 

has identified accounts Gatchalian holds, but has not garnished them, suggesting 

there is no evidence the assets really belong to Lee.

The SEC submitted a proposed order freezing assets, which differs 

substantially from the order it requested in the motion. The proposed order 

primarily directs third parties to retain any assets held “in the name of, for the 

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benefit of, or over which account authority is held by Defendant James Y. Lee 

and/or Larissa O. Ettore . . . .” The order is directed at third parties (including the 

Nominees, Gatchalian, and Jean Lee, as well as anyone else who has actual 

notice of it), but their only obligation concerns the assets of Lee and Ettore. In 

other words, the freeze contemplated in the proposed order is not the broad freeze 

the motion requested. Instead, it merely orders that Lee’s and Ettore’s assets be 

frozen.

The motion is GRANTED IN PART. James Lee’s and Larissa Ettore’s assets 

are ordered frozen. As to the assets of the others, the motion is DENIED WITHOUT 

PREJUDICE. But in the Court’s view, the proposed order the SEC submitted is 

very nearly acceptable. The Court will sign and issue it separately, after some 

modification. The SEC may file a renewed motion seeking a broader freeze if more 

evidence comes to light. Any future motion to freeze assets is REFERRED to 

Magistrate Judge Bernard Skomal, or any other magistrate judge later assigned to 

this case.

Motion for Order to Show Cause

The SEC’s motion is directed specifically at Larissa Ettore and James Lee, 

not the Nominees or any other third party even if named in a motion. It seeks an 

order to show cause why these two should not be held in contempt. 

The Court’s final orders of judgment against both Lee and Ettore included 

commands requiring their compliance. In addition to authority the SEC cites in its 

motion, this Court and all courts have the power to hold in contempt those who 

disobey their orders. See Young v. U.S. ex rel. Vuitton et Fils S.A., 481 U.S. 787, 

795–96 (1987) (quoting Michaelson v. U.S. ex rel. Chicago, St. P., M. & O.R. Co., 

266 U.S. 42, 65–66 (1924)). The Court’s judgment against Ettore, it should also be 

noted, specifically provided that the SEC could move for contempt.

Lee and Ettore in their opposition treat the motion as if it were itself a motion 

for contempt, rather than a motion for an order to show cause. At this stage, the 

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SEC does not have to prove they committed contempt; it need only show that an 

order to show cause should issue. Furthermore, the Court itself can initiate 

contempt proceedings, if it believes they are warranted. Young, 481 U.S. at 793. 

Even if the SEC had not filed a motion or presented any evidence, the Court could 

sua sponte issue an order to show cause.

That being said, the Court finds the SEC has presented evidence strongly 

suggesting Lee and Ettore have contumaciously disobeyed the Court’s orders to 

them. The SEC’s motion (Docket no. 162) is therefore GRANTED. James Lee 

and Larissa Ettore are ORDERED TO SHOW CAUSE why they should not be held 

in contempt for disobeying the Court’s orders to them. The substance of the 

accusations against them is set forth in the SEC’s motion (Docket no. 162).

The issue of whether Lee and Ettore should be held in contempt is 

REFERRED to Magistrate Judge Bernard Skomal for a report and 

recommendation. He may, in his discretion, either treat the briefing as setting forth 

the parties’ positions, or he may order additional briefing. Because it appears there 

are disputed issues of fact, and questions of credibility will need to be resolved, he 

should hold an evidentiary hearing. His report and recommendation should include 

his factual findings. Any related motions or requests, such as the SEC’s request 

for an accounting, are also referred to him. He should resolve directly all matters 

that are within his authority to resolve, and the remainder should be included in a 

report and recommendation. 

IT IS SO ORDERED.

Dated: February 20, 2019

Hon. Larry Alan Burns

Chief United States District Judge

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