FOX ROTHSCHILD LLP 

UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF FLORIDA 

WEST PALM BEACH DIVISION 

CASE NO.: 20-cv-81205-RAR

SECURITIES AND EXCHANGE 

COMMISSION, 

 Plaintiff, 

v. 

COMPLETE BUSINESS SOLUTIONS 

GROUP, INC. d/b/a PAR FUNDING, et al, 

 Defendants. 

 / 

DEFENDANTS’ RESPONSE TO PLAINTIFF’S EX-PARTE 

MOTIONS FOR APPOINTMENT OF A RECEIVER AND FOR AN ASSET FREEZE 

 

Defendants, Complete Business Solutions Group, Inc. d/b/a Par Funding, Full Spectrum 

Processing, Inc., Lisa Mcelhone, Joseph Cole Barleta and Joseph W. LaForte, and Relief 

Defendant, L.M.E 2017 Family Trust (together, the “Defendants”), submit this Response to the 

Securities and Exchange Commission’s Ex-Parte Motions for the Appointment of a Receiver and 

for an Asset Freeze of the Defendants, and state as follows: 

Introduction 

As the Court is well aware, this is a fast-moving case with a unique procedural posture. 

On July 24, 2020, the Securities and Exchange Commission (the “Commission”) filed a Complaint 

for Injunctive and Other Relief (the “Complaint”) against the Defendants and other named 

defendants. ECF No. 1. The Commission alleges that Defendants are engaged in a business of 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 1 of 12
2 

 FOX ROTHSCHILD LLP 

making “opportunistic” loans to small business owners across America and that they have funded 

these loans through a “web of unregistered, fraudulent securities offerings.” ECF No. 1 at ¶ 1. 

Based on these serious allegations (which the Defendants vigorously dispute), the 

Commission contended that this Court should impose a temporary restraining order, including the 

extraordinary relief of appointing a receiver over the Defendants’ complete business operations, 

and a freeze of the Defendants’ assets, all on an ex parte basis. (The “TRO Motion”) 

To be clear, for purposes of this Response, Defendants do to contest the SEC’s request for 

the imposition of a TRO that temporarily restrains Defendants from engaging in activities that 

would constitute a violation of the federal securities laws.1 Defendants also do not oppose the 

portion of the TRO that requires Sworn Accountings. Id. at Section IV, p. 18, and Records 

Preservation, Id. at Section V, p. 19. With respect to Expedited Discovery, Id., at Section VI, p. 

19, Defendants request that such discovery be deferred until after the preliminary injunction 

hearing so that undersigned counsel can focus their efforts on protecting the Due Process rights at 

that hearing that they have not been able to protect at this “temporary” stage of the proceedings. 

Further, if the SEC contends a right to expedited discovery, Defendants should have the equal right 

to take depositions of the SEC and non-parties on two days’ notice. Defendants should have a 

meaningful right to defend this action once the one-sided nature of the SEC’s ex parte practice 

ends with the resolution of the TRO Motion. 

 

1 The SEC submitted a proposed TRO to the Court that commences those prohibitions, at Section 

II, pages 4-11, that Defendants do not contest at this time. Defendants will contest, at the 

preliminary injunction hearing, the allegation that Notes that are the subject of the SEC’s 

enforcement action are “securities.” See Reves v. Ernst & Young, 494 U.S. 56 (1990) 

(“[r]ecognizing that not all notes are securities”). 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 2 of 12
3 

 FOX ROTHSCHILD LLP 

 On July 27, 2020, the parties appeared at a telephone status conference before this Court, 

at which time the Court ordered that Defendants would be allowed to file a response to the SEC’s 

TRO Motion. As undersigned counsel began to review the SEC’s TRO Motion and proposed 

orders granting extraordinary relief, it was apparent that the SEC was proposing anything but 

temporary relief. Instead, the SEC was proposing the imposition of a broad receivership, to take 

total control of Defendants’ businesses. The SEC was also proposing a total freeze of Defendants 

assets. 

At the July 27 status conference, undersigned counsel expressed our concern that the socalled “temporary” relief that the SEC sought to impose through an all-encompassing receivership 

and total asset freeze is anything but temporary and is unnecessarily destructive of Defendant’s 

legitimate businesses and their personal rights. Such action will lead to the liquidation of 

Defendants’ legitimate businesses. SEC counsel’s response was that the SEC does not use its 

enforcement powers to liquidate legitimate companies.2 Nothing could be further from the truth. 

The SEC’s own Investor Bulletin explains to investors that “Courts typically grant broad 

powers to receivers, including the authority to sue on behalf of the receivership and to gather, 

manage and liquidate receivership assets on behalf of potential creditors and harmed investors.”3 

 

2 SEC counsel referred to the Mutual Benefits Corp. enforcement action that has been pending in 

this District for 16 years, as reflecting that the SEC does not liquidate companies. The SEC’s own 

press release at the commencement of that proceeding on May 6, 2004, reflected that the SEC 

complaint was filed simultaneously with the State of Florida, Department of Financial Services, 

Office of Insurance Regulation’s filing of an emergency cease-and-desist order suspending that 

business’s license. See https://www.sec.gov/litigation/litreleases/lr18698.htm. The past 16 years 

have been a liquidation proceeding. 

3 See https://www. Investor.gov/introduction-investing/general-resources/news-alerts/alertsbulletins/investor-bulletins-87, at Section 3. 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 3 of 12
4 

 FOX ROTHSCHILD LLP 

The proposed receivership order submitted by the SEC, sealed ECF 4-2, can only be viewed as 

order that would provide total control to the SEC in liquidating Defendants’ operating businesses. 

The proposed order even contained provisions that would restrict investors from pursuing 

collection of the very security interests that they were provided with the notes that are the subject 

of this litigation. 

The “imposition of a receivership on a corporation is a drastic measure, the detrimental 

business effects of which should be carefully considered.” SEC v. Spence & Green Chem. Co., 612 

F.2d 896, 904 (5th Cir. 1980) (emphasis added). Courts in this District and elsewhere, have limited 

the powers of a receiver at the commencement of a case. Whether called a limited receiver, or a 

monitor, courts have not allowed the type of expansive, liquidation based receivership outside of 

the context of a Ponzi scheme or a case of a failed business. See e.g., In re The Reserve Fund Sec. 

& Derivative Litig., 673 F. Supp. 2d 182, 207 (S.D.N.Y. 2009) (appointing a Monitor to oversee 

defendants’ operations and protect the interests of investors.”); Republic of Philippines v. New 

York Land Co., 852 F.2d 33, 35 (2d Cir. 1988) (affirming the district court’s appointment of a 

monitor after the court found that a receiver was not appropriate and should only be appointed “in 

the case of clear necessity.”).

In SEC v. Koenig, 1972 WL 329, at *1 (S.D.N.Y. June 20, 1972), aff’d sub nom., 469 F.2d 

198 (2d Cir. 1972), the Commission requested the Court to impose a receiver “to take all necessary 

actions to protect the interests of Ecological Science Corporation,” based on allegations that the 

defendants were engaged in, or about to engage in, acts and practices constituting violations of 

Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(e)m and 78u(f). 

After the court conducted a hearing and gave the parties an opportunity to be heard, the court 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 4 of 12
5 

 FOX ROTHSCHILD LLP 

determined a Receiver with “limited powers” should be appointed to “preserve the status quo 

while an accurate picture of what transpired is obtained.” Id. at *8-9 (emphasis added). On appeal, 

the Second Circuit Court of Appeals upheld the appointment of a limited receiver with powers 

tailored to the facts of the case. Koenig, 469 F.2d at 202. 

 In Hofmann v. EMI Resorts, Inc., Nos. 1:09-cv-20526-ASG & 1:09-cv-20657-ASG (S.D. 

Fla. July 17 2009), this Court authorized the appointment of a Special Master (rather than a 

Receiver) to “MONITOR over the Elliott Defendants and their financial business affairs.” Id. at 

*2 (providing the Monitor with the exclusive power, duty and authority to “examine, review and 

monitor the business affairs, funds, assets and take necessary action to negotiate (along with 

defendants) with creditors concerning the preservation or refinance of such assets). The Eleventh 

Circuit upheld that order on appeal. Hofmann v. De Marchena Kaluche & Asociados, 657 F.3d 

1184, 1186 (11th Cir. 2011); see also SEC v. New Day Atlanta, LLC, 2010 WL 11440935, at *2 

(N.D. Ga. May 3, 2010) (appointing an independent Monitor with powers to protect the interests 

of all persons who have invested in, purchased securities from, and/or loaned moneys to the 

investors); CFTC v. Worth Group, Inc., No. 13-cv-80796 (S.D. Fla. Jan. 23, 2014) (appointing an 

independent corporate Monitor with the ability to, inter alia, monitor expenditures and perform an 

assessment of defendants’ current procedures); SEC v. Bivona, 2016 WL 9021535 (N.D. Cal. Mar. 

25, 2016) (appointing an independent Monitor and providing the monitor with, inter alia, complete 

access to the books and records, principals, officers, employees, and agents of defendant as well 

as the ability to review and monitor all proposed transfers of money or assets). 

 The courts have warned the SEC against the type of overreaching proposed by the SEC 

in this case. See SEC v. American Bd. Of Trade, Inc., 830 F.2d 431, 436 (2d Cir. 1987)(“we have 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 5 of 12
6 

 FOX ROTHSCHILD LLP 

warned that ‘the appointment of trustees [or receivers] should not follow requests by the SEC as a 

matter of course.” “We are, however, disturbed by the subsequent use of the receivership to effect 

the liquidation of the ABT entities.” “We have in the past criticized the use of receivers to effect 

the liquidation of a defendant firm in litigation under the Securities Act or the Securities Exchange 

Act.”) 

 The SEC proposed Ryan K. Stumphauzer, Esq. to be the receiver. Defendants have no 

objection to the selection of Mr. Stumphauzer to have a role as a neutral party in this case. On 

July 27, 2020, the Court entered an Order appointing Mr. Stumphauzer as receiver. See sealed 

D.E. 36. That order, while selecting Mr. Stumphaizer to serve, did not at that time authorize him 

to take any formal action as the receiver. Instead, the Court provided that “If the Court grants 

Plaintiff’s Emergency Ex Parte Motion for Temporary Restraining Order and Other Relief,” the 

Receiver will have a list of obligations and duties set out in that Order. As the Defendants 

understood and accept the provisions of that Order, which will provide the receiver with a fulsome 

and meaningful oversight function, while permitting Defendants’ businesses to continue to 

operate, undersigned counsel immediately reached out to the SEC and to Mr. Stumphauzer to begin 

a dialogue on how the receiver could fulfill the role set out in that Order. 

Most importantly, the Order appropriately did not contain the liquidation provisions in the 

SEC’s proposed TRO order. If the SEC requests an expansion of the terms of that Order, 

Defendants will refute, with evidence, any allegation that would support the type of receivership 

proposed by the SEC in this case. But, if the SEC accepts the Order, and allows the Defendants 

to operate their businesses without inappropriate restrictions, then the Parties can move on to the 

remaining issue in the TRO Motion – the requested asset freeze. 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 6 of 12
7 

 FOX ROTHSCHILD LLP 

The SEC Has Not Met Their Burden for the Imposition of an Asset Freeze in the TRO 

The SEC submitted a proposed TRO that includes a total asset freeze of these Defendants 

and others. Is., at Section III, pps. 11-13 and 16-18. Defendants submit that the SEC has not met 

the heightened requirements to be able to impose a total asset freeze on their TRO motion. Further, 

the SEC has blatantly ignored recent Supreme Court law that limits the disgorgement that they 

may seek in this case, and thus limits the asset freeze that is predicated on that claim of 

disgorgement. Section III should be omitted from the TRO and the issue of an asset freeze should

be further and more fully addressed at the preliminary injunction hearing. 

 With respect to the Commission’s request for an asset freeze, courts are permitted to freeze 

assets pending trial “as a means to preserv[e] funds for the equitable remedy of disgorgement.” 

SEC v. ETS Payphones, Inc., 408 F.3d 727, 734 (11th Cir. 2005). The Commission must prove a 

reasonable estimate of defendants’ ill-gotten gains. Id. at 735. When a Court is asked to consider 

the imposition of an asset freeze over a defendant’s assets, each defendant must be considered 

individually. 

The Commission’s Complaint alleges that a half billion dollars has been raised over a 

period of 8 years. ECF No. 1 at ¶ 1. Later, the Commission alleges that as of December 2017, 

Par Funding raised $97 million through promissory notes. Id. at ¶ 61. Then, the Commission 

alleges that one of the co-Defendants raised $22,309,000 and $6,332,500 since 2018. Id. at ¶ 107. 

Further, the Commission alleges that another co-Defendant raised $5,838,000 since 2018. Id. at ¶ 

114. Additionally, it is alleged that a separate co-defendant raised $5.5 million since 2018. Id. at 

¶ 123. In its remedies section, Id. at pg. 56, the Commission then lumps all the defendants together 

in the request for an asset freeze irrespective of the allegations or claims. 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 7 of 12
8 

 FOX ROTHSCHILD LLP 

The SEC’s request for a TRO including an asset freeze is set forth at pages 68 -71 of its 

TRO Motion. After stating general propositions of law, the SEC requests that Par Funding, Ms. 

McElhone and Mr. La Forte be jointly and severally ordered to disgorge $492,398,894; that Full 

Spectrum be ordered to disgorge $4,398,535,; that Mr. Cole be ordered to disgorge $165,159,000; 

and that Relief Defendant L.M.E. 2017 Family Trust be ordered to disgorge $14.3 million. The 

sole support for this claim of disgorgement, and the asset freeze that must be based on this claim 

of disgorgement, is that this is “the amount raised from investors from July 2015 through the most 

recent bank statements available to us.” See p. 69, note 405. The sole basis to support the amounts 

set forth by the SEC is a summary Exhibit 13 submitted by a forensic accountant who reviewed 

bank records. 

While the forensic accountant’s summary of bank records is a proper “first’ step in 

conducting a disgorgement analysis, what is truly remarkable is that the SEC ignores the Supreme 

Court’s dictates of what they must prove as the additional steps if they seek the equitable remedy 

of disgorgement, and in this case, an asset freeze to protect a future disgorgement award. The 

Commission’s practice of making broad claims of disgorgement, in support of broad and total asset 

freezes against all defendants, is contrary to the Supreme Court’s recent decision in Liu v. SEC, _ 

U.S. _, 140 S. Ct. 1936 (2020). 

Liu addressed a challenge to the Commission’s right to employ the equitable remedy of 

disgorgement. Without the right to seek disgorgement, the Commission would not have a 

concomitant right to freeze a defendant’s assets at a provisional remedy at the outset of a case. 

The Supreme Court upheld the Commission’s power to seek disgorgement. Id. at 1940. However, 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 8 of 12
9 

 FOX ROTHSCHILD LLP 

it imposed significant restrictions on that practice. Id. Those restrictions are highly relevant to the 

temporary relief sought by the Commission in this case. 

 In Liu, the primary challenge to the Commission was that it did not have the right to seek 

disgorgement at all. Id. But, appellants also contended that the Commission’s practice of 

disgorgement was unlawful because it failed to return disgorged funds to investors, improperly 

imposed disgorgement on a basis of joint and several liability, and failed to deduct business 

expenses from the award. Id. at 1947. While the Supreme Court declined to resolve those issues, 

it provided guidance to the lower courts. Id. at 1947-48 

 With respect to the first issue, while this case is not at a stage where Defendants have been 

found liable or a disgorgement award has been entered, the issue of returning funds to investors is 

relevant to the issue of whether investors are seeking a return of their investment. Defendants will 

present to the Court evidence regarding the March 2020 Exchange Offer, including investors who 

knowingly and voluntarily chose not to redeem their notes and who knowingly and voluntarily 

chose to continue their business with these Defendants. While the Commission acts of behalf of 

investors in enforcement proceedings, it cannot ignore the goals and desires of investors. 

 With respect to the second issue, while Ms. McElhone and Mr. LaForte do not contest the 

fact that as a married couple, they should be considered as one family unit, any other aspect of 

joint and several liability between and among the named Defendants in this case would be 

improper. See Liu, 140 S. Ct. at 1949. Thus, in seeking an asset freeze that seeks to protect a 

disgorgement award, each defendant must be considered on an individual basis, and only as to 

individual amounts of so-called ill gotten gains. 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 9 of 12
10 

 FOX ROTHSCHILD LLP 

 The deduction for business expenses becomes one of the most significant issues in 

considering an operating business, such as Complete Business Solutions Group, Inc. and Full 

Spectrum Processing, Inc. As the Supreme Court held, both receipts and payments must be taken 

into account. Id. at 1950. The SEC totally ignored this requirement. They simply totaled all the 

money raised by investors, and then traced that money to different sources. But, the Supreme 

Court flatly rejected that approach to determining disgorgement. Defendants will present evidence 

at the August 4 hearing related to appropriate business expenses and other deductions that must be 

considered before any asset freeze can be imposed to protect an eventual disgorgement order. 

 Furthermore, this stage of the proceeding is not an appropriate time to resolve these 

evidentiary issues. While the SEC is correct that the Court can properly enter a TRO that enjoins 

the Defendants from violating the securities laws based solely on a prima facie submission, the 

imposition of an asset freeze requires a heightened evidentiary basis. In Winter v Natural 

Resources Defense Council, Inc., 555 U.S. 7 (2008), the Supreme Court set out a heightened 

standard for a finding a likelihood of suffering irreparable injury before injunctive relief can be 

granted. That heightened standard has been applied to the SEC when it seeks an asset freeze. See 

SEC v Schooler, 902 F.Supp.2d 1341, 1359-1361 (S.D. Cal. 2012)(applying Winter and rejecting 

the SEC’s arguments for an asset freeze.)

 Applying these legal principles, the appropriate remedy is one that is sufficient to protect 

the Commission’s legitimate interest, while affording the Defendants their Due Process rights, 

including the right to adequately defend this case, and while preventing the destruction of a viable 

and lawful business. The Court has already set forth an appropriate protection in its July 27 Order 

appointing Mr. Stumphauzer. Paragraph 4 of that Order authorizes the Receiver to take any other 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 10 of 12
11 

 FOX ROTHSCHILD LLP 

action as necessary and appropriate ... to prevent the dissipation or concealment of ... the 

Receivership Entities’ property interests. Undersigned counsel has reached out to Mr. 

Stumphauzer and is confident that Defendants can agree to a set of protocols that will protect the 

interests of all involved in this litigation. Nothing more is needed and nothing more should be 

ordered. 

 Respectfully submitted, 

FOX ROTHSCHILD LLP

Attorneys for Complete Business Solutions 

Group, Inc. d/b/a Par Funding, Full 

Spectrum Processing, Inc., Lisa Mcelhone, 

Joseph Cole Barleta and Joseph W. LaForte 

and Relief Defendant, L.M.E 2017 Family 

Trust 

One Biscayne Tower, Suite 2750 

2 South Biscayne Blvd. 

Miami, Florida 33131 

Telephone: (305) 442-6547 

By: /s/Joseph DeMaria 

Joseph A. DeMaria, B.C.S. 

Florida Bar No. 764711 

Email: JDeMaria@FoxRothschild.com

 Robert F. Elgidely

 Florida Bar No. 111856 

 Email: RElgidely@FoxRothschild.com 

Sec. Email: mmiller-hayle@foxrothschild.com 

 Brett Berman, Esq.

 (pro hac vice pending)

 2000 Market Street, 20th Floor 

 Philadelphia, PA 19103, 

 Tel: (215) 299-2000 

 Email: bberman@foxrothschild.com 

 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 11 of 12
12 

 FOX ROTHSCHILD LLP 

CERTIFICATE OF SERVICE 

I hereby certify that on July 28, 2020, I electronically filed the foregoing with the Clerk of 

the Court using CM/ECF. 

 /s/Joseph A. DeMaria 

Joseph A. DeMaria 

Case 9:20-cv-81205-RAR Document 43 Entered on FLSD Docket 07/29/2020 Page 12 of 12