Opinion ID: 1386574
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: Between 1995 and 1999, Charles Homa operated an automobile title lending business called Cash 4 Titles (C4T). Sunset Financial. Services, Ltd., was the marketing company for the various C4T entities. The C4T entities actually operated a huge Ponzi scheme: the loss by innocent investors exceeded $165,000,000. On October 15, 1999, the SEC filed a civil enforcement suit (the SEC Action) against Mr. Homa; the suit accused Mr. Homa of civil fraud in violation of United States securities laws. [3] At that time, the United States Department of Justice also brought criminal charges against Mr. Homa for securities laws violations. [4] The SEC promptly sought freeze orders for all the C4T assets. The court granted the motion's and issued two freeze orders. The first was entered on October 15, 1999. That order initially froze the assets of the defendants in the. SEC Action. [5] A second freeze order, issued October 18, 1999, froze any bank account in which any of the defendants had signatory authority or, beneficial interest, including C4T and Banc Caribe. On November 2, 1999, Mr. Stenger was appointed receiver over the assets of Mr. Homa, Sunset Financial and other affiliated C4T entities, including the interests of any individuals or entities that constituted C4T property in Banc Caribe. The receiver's general mandate was to marshal receivership property for distribution to the injured investors.
Mr. Pollock and Mr. Jones met and became friends in 1978. Mr. Pollock is a citizen of the United States who maintained a Florida driver's license until at least September 26, 2004, and who currently resides in St. Lucia, an independent country within the British Commonwealth. From 1998 until 2002, Mr. Pollock resided in Dominica, another island nation in the Caribbean Sea. Mr. Pollock continuously maintained, through at least January of 2006, an accounting practice with a post office box address in Winter Park, Florida. Paul Morgan. Jones is a citizen of the United States who maintains a Florida driver's license. From 1998 until 2002, Mr. Jones also resided in Dominica. Mr. Jones carries both a United States and a Dominica passport. In the early 1990s, Mark Ellison invited Mr. Pollock to Dominica to look at a large tract of land, Point Round, that Mr. Ellison sought to develop. The development did not occur. In 1995, Mr. Pollock learned from Reginald Shillingford, a part owner of Point Round, that Dominica had enacted new legislation permitting offshore banking and financial industry development. Mr. Pollock became interested in financing a bank in Dominica. Mr. Pollock first learned of Mr. Homa through his brother. In March 1998, Mr. Pollock met in Florida with Mr. Homa and several other potential investors. They discussed the tract of land in Dominica. and the possibility of starting a bank to assist in the development of the property. Mr. Pollock then prepared a written document, the prospectus, [6] to solicit Mr. Homa's investment in the bank that he and Mr. Jones hoped to finance in Dominica, Banc Caribe. The prospectus contemplated a minimum of 500,000 shares at $10 per share for a total of $5,000,000, [7] and reflected an ultimate goal of raising a maximum of $15,000,000 in equity for the bank. Mr. Pollock again met with Mr. Homa on April 27, 1998, in Florida. At that time, Mr. Pollock presented Mr. Homa with the Banc Caribe prospectus. [8] Mr. Homa indicated that he was interested in the proposal and that the would like to meet Mr. Jones. Mr. Pollock, Mr. Jones and Mr. Homa met together in May 1998. Shortly thereafter, Mr. Homa indicated that he would pursue the Banc Caribe plans with Mr. Pollock and Mr. Jones, but that he wanted no other partners or investors in the project. Mr. Pollock and Mr. Jones agreed. The precise terms of Mr. Homa's investment in the Banc Caribe project are uncertain. The parties never signed a contract or otherwise reduced their agreement to writing. Moreover, as we shall discuss below, throughout the venture the parties ignored the terms of other documentation created during the Banc Caribe project. In the district court, Mr. Pollock identified at least three possible sources for determining the terms of the agreement between himself, Mr. Jones and Mr. Homa: the prospectus, the investment promissory notes and oral conversations with Mr. Homa. These three sources are in conflict regarding key terms of the agreement. [9] After Mr. Homa indicated his intention to go forward with Banc Caribe, Mr. Pollock and Mr. Jones worked quickly to establish an offshore account through which Mr. Homo, could transfer large amounts of C4T money out of the United States. Mr. Pollock first created Caribbean Ventures International, Ltd. (Caribbean Ventures) as a holding company for the bank's equity. The shares of Caribbean Ventures were held by Mr. Shillingford, who also was a director of Caribbean Ventures. Mr. Pollock and Mr. Jones filled the remaining director positions in Caribbean Ventures. Mr. Pollock, Mr. Jones and. Mr. Homa planned to put the funds from the offering into Caribbean Ventures and then have Caribbean Ventures apply for a banking license in Dominica so that Banc Caribe could become a legal entity. Then, the funds in Caribbean Ventures would be transferred to Banc Caribe and shares in the bank would be issued, possibly pursuant to the terms of the offering in the prospectus. [10] In accordance with this plan, on June 5, 1998, Mr. Homa, through Sunset Financial, wire transferred his initial $500,000 investment in Banc Caribe to the account of Caribbean Ventures at the Commercial Bank of Dominica. On March 16, 1999, Mr. Homa invested a second installment of $500,000 in the same manner. Mr. Pollock then drafted an investment promissory note that documented Mr. Homa's first investment of $500,000 in Banc Caribe. [11] He later drafted a second note with identical terms for the second investment of $500,000. These notes served as the second alleged source of the terms of the agreement between Mr. Pollock, Mr. Jones and Mr. Homa. Notably, Mr. Homa took no part in the creation of the notes, never signed them and did not have possession of them. Mr. Jones also had no knowledge of the notes; he did not see them until 2004. The true purpose of the notes was to support the bank license application and to prove to the regulators in Dominica that Banc Caribe had met the minimum requirement of $1,000,000 in unrestricted capital. On June 12, 1998, Mr. Pollock, Mr. Jones and Caribbean Ventures filed Banc Caribe's Articles of Incorporation with' the Government of. Dominica. On August 18, 1998, Banc Caribe filed its application with Dominica. When it applied for its license, Banc Caribe was funded with $1,000,000, the minimum capital requirement under the law of Dominica. It opened for business shortly thereafter. Mr. Homa, through Sunset Financial, later paid an additional $2,000,000 to Caribbean Ventures, for a total investment of $3,000,000 in Banc Caribe. No other investment promissory notes were prepared to document this subsequent $2,000,000 investment from Mr. Homa. Banc Caribe did not receive a capital contribution from any source other than Mr. Homa. Caribbean Ventures owned all the stock of Banc Caribe: Mr. Pollock identified the third source of the agreement between the parties as a series of conversations with Mr. Homa. Mr. Pollock was inconsistent in his representations to the court regarding which of these three sources of the agreement controlled on any given point, and the court found him to be entirely without credibility. [12] Banc Caribe began doing business in September 1998, subject to the banking laws of Dominica. Mr. Jones served as its president and secretary, and Mr. Pollock served as the managing director and chief financial officer. Mr. Pollock leased approximately 6,000 square feet of space for the bank, and its doors officially opened in October 1998. In January 1999, Mr. Homa was designated as the Chairman of the Board of Directors of Banc Caribe.
On October 15, 1999, the SEC brought a civil, suit against Mr. Homa and. C4T, the combined Ponzi-scheme entities. The district court entered the first freeze order against Mr. Hama and C4T on that day, and a second, clarifying order on October 18. By that time, Banc Caribe had between 100 and 150 accounts, and it had expanded to fifteen employees. Sunset Financial, one of Mr. Homa's corporate entities that was specifically mentioned in the freeze orders, had an account at Banc Caribe. [13] Sunset Financial's account held approximately $5,793,000 of the $8,000,000 in total deposits in Banc Caribe. Mr. Homa also controlled other' entities, however, including Caribbean Air and Caribbean Realty, that had accounts at Banc Caribe. The total funds that could be attributed to Mr. Homa, therefore, accounted for more than 90% of the deposits in the bank. The record suggests that Mr. Pollock and Mr. Jones first became aware of Mr. Homa's legal trouble when, on October 17, 1999, Mr. Pollock saw an article in a Florida newspaper concerning the SEC action against Mr. Homa. That article described allegations that Mr. Homa had been laundering money from an international Ponzi scheme. Mr. Pollock and Mr. Jones met in Dominica to discuss the situation and decided to ask Mr. Homa to resign from the board of directors. They called Mr. Homa on October 17, and Mr. Homa agreed to resign. Mr. Homa allegedly did not inform Mr. Pollock of the freeze order at that time. On October 18, Mr. Pollock and Mr. Jones held an emergency meeting of Banc Caribe's board of directors and removed Mr. Holm, as a director of the bank. [14] On October 18, Banc Caribe also attempted to initiate a transaction with Dain Rauscher, one of Banc Caribe's correspondent banks. [15] Dain Rauscher informed Mr. Pollock that there was a problem with Banc Caribe's account. Mr. Pollock learned from Damn Rauscher's legal department that the account was locked. Mr. Pollock knew at that time that the problem stemmed from a freeze order. At 2:48 p.m. on October 18, Dain Rausher faxed a copy of the October 15 freeze order to Mr. Pollock and Mr. Jones. Sometime after receipt of the order, Mr. Jones, with the knowledge and authorization of Mr. Pollock, directed that Paine Webber wire transfer $1,975,000 out of Banc Caribe's Paine Webber correspondent banking account in the United States to Banc Caribe's correspondent banking account at Alpha Credit Bank in Athens, Greece. [16] The funds actually were transferred to the Alpha. Credit Bank on October 20, 1999, and the transfer likely was ordered on that day. The transfer lacked any business reason; it was initiated solely to circumvent the freeze order. Sometime thereafter, Mr. Pollock retained an attorney for Banc Caribe. Banc Caribe began negotiating with the SEC on October 20, 1999. On October 26, 1999, the SEC and Banc Caribe entered into a resolution regarding the transfer of certain assets and the repatriation of others held in Banc Caribe for the benefit of C4T entities. This accommodation ensured that Banc Caribe had the liquidity that Mr. Pollock believed it needed to function. Sometime between October 20 and 26, 1999, Caribbean Ventures determined that Mr. Homa, because of his legal difficulties, would be unable to invest the full amount that Mr. Pollock testified Mr. Homa had agreed to contribute. Therefore, Caribbean Ventures determined that Mr. Homa was in default and cancelled the notes. Mr. Pollock and Mr. Jones were the sole officers of Caribbean Ventures, but Mr. Jones did not take part in cancelling the notes. Additionally, Mr. Pollock did not tell Mr. Homa, Sunset Financial or anyone else that Mr. Homa was in default or that the notes had been cancelled. Neither Mr. Pollock nor Mr. Jones ever informed the SEC of Mr. Homa's rights under the agreement, the existence of any agreement or that Caribbean Ventures unilaterally had determined to cancel the notes. Mr. Pollock and Mr. Jones also failed to inform the district court, SEC or any other authority that they had voided unilaterally Mr. Homa's right to bank ownership and to the money he had invested in the bank. [17] Through these actions, Mr. Pollock and Mr. Jones effectively transferred to themselves all the value represented by Mr. Homa's $3,000,000 investment in. Banc Caribe. This transfer occurred after Mr. Pollock and Mr. Jones had actual notice of the freeze orders. Mr. Pollock also closed Mr. Homa's Sunset Financial account. Between October 19 and 21, 1999, before closing the account, Mr. Pollock invoked Banc Caribe's right to set-off against Sunset Financial's account. He offset $2,216,462.76 from Mr. Homa's Sunset Financial account over the course of four withdrawals. [18] No one contacted the SEC or the district court before making the withdrawals. These set-offs occurred after Mr. Pollock and Mr. Jones received actual notice of the freeze orders, and the money was taken from the account of Sunset Financial, an account over which Mr. Homa had signatory authority. One of the set-offs from Sunset. Financial's account related to a home that Mr. Homa had arranged to purchase through Banc Caribe. [19] Banc Caribe declared Mr. Homa to be in default on the home's lease, even though no payments had been missed. The bank asserted that an accelerated lease payment of $851,000 was immediately due, and it removed the money from Sunset Financial's account. [20] Banc Caribe had no rights under the lease, however, which was purportedly between Mr. Homa and Caribbean Realty. Mr. Pollock did not accelerate Caribbean Realty's lease payments; instead, he went directly to Mr. Homa's money in the Sunset Financial account. In all, Sunset Financial paid at least $1,351,000 for the purchase of a home to which neither Sunset Financial nor Mr. Homa ever obtained legal title. The home was then sold and the proceeds went to companies with which Mr. Pollock had entered into an employment agreement. None of the benefit accrued to Mr. Homa or to Banc Caribe.
Caribbean Ventures sold its stock interest in Banc Caribe through two transactions, one with Witherspoon Financial in July 2000 and the other with Aristocrat Trust in December 2000. Witherspoon Financial paid $2,000,000 for a 40% interest in Banc Caribe. Although Mr. Jones went to great lengths to hide his benefit from the sale, he kept the $1,000,000 from that first sale for himself by diverting it through a shell corporation, Morgan Global Capital, [21] created for that purpose. Aristocrat Trust paid $3,000,000 for the remaining interest in Banc Caribe. After the sale of Banc Caribe was complete, another $1,500,000 was diverted through Morgan Global Capital for Mr. Jones. The total consideration for the sale of Banc Caribe was $5,000,000. Mr. Pollock's benefit from the sale remained in Caribbean Ventures. Mr. Pollock was the sole employee of Caribbean Ventures. His employment commenced in January or February of 2003 and continued through the summer of 2005. He later sued Caribbean Ventures for $1,500,000, the value of his employment contract with that company. Mr. Pollock also sued Banc Caribe for the value of his employment contract with it and for $700,000, the value of an airplane lease on which Banc Caribe had defaulted. [22] Additionally, Mr. Pollock received more than $750,000 in loans from Caribbean Ventures for the purchase of his home and other items, which he never repaid. Caribbean Ventures also distributed $250,000 to Mr. Pollock, Mr. Jones and Mr. Shillingford for the purchase and improvement of land in Dominica. These transactions reinvested the proceeds of Mr. Homa's criminal enterprises into shell entities. The end result was that Mr. Pollock and Mr. Jones ended up with a significant amount of money from the Ponzi scheme proceeds by means of leases, loans and employment contracts that were nothing more than window dressing.
On May 1, 2003, at the request of the receiver, the district court entered an order to show cause why Mr. Pollock and Mr. Jones should not be held in contempt for their actions taken in violation of the freeze order. On June 3, 2003, the court froze Bank Caribe's assets with a preliminary injunction against any transfers. On March 31, 2004, it issued an opinion and order in which it determined that it had jurisdiction over the bank, Mr. Pollock and Mr. Jones. This show cause order was later amended on March 16, 2005. Between February 1 and 3, 2006, the district court held an evidentiary hearing on the amended Rule to Show. Cause as to why Mr. Pollock and Mr. Jones should not be held in contempt for violating the freeze orders. On August 3, 2006, the court found Mr. Pollock and Mr. Jones in civil contempt and ordered that they jointly and severally disgorge approximately $7,216,462.76, plus prejudgment interest and costs. The court further ordered Mr. Pollock and Mr. Jones to appear personally before the court on August 31, 2006, and to provide the court with a specific plan and timetable for the payment of the money. The court specified that willful failure to comply with the order would result in the issuance of body attachment orders. In that order, the district court found by clear and convincing evidence that Mr. Pollock and Mr. Jones, by their direct and indirect actions, had violated the freeze orders and engaged in three contemptuous acts. First, they had transferred $1,975,000 from Banc Caribe's Paine Webber account to the Alpha Credit Bank in Athens, Greece. Second, Mr. Pollock and Mr. Jones had cancelled Mr. Homa's notes and ownership in Banc Caribe, then misappropriated the funds from the sale of Banc Caribe for their own use. Finally, they had set-off $2,216,462.76 in Mr. Home's Sunset Financial account at Banc Caribe. The district court ordered Mr. Pollock and Mr. Jones to return to the receiver the funds lost in the second two transfers. Specifically, the court ordered Mr. Pollock and Mr. Jones to disgorge the $5 million from the sale of Mr. Homa's interest in Banc Caribe and the $2,216,462.76 they had setoff from Mr. Homa's Sunset Financial account. The money from the first transfer to Alpha Credit was recovered by the receiver from another source. The district court found that. Banc Caribe and the C4T entities did not maintain any formality or distinction between the assets that belonged to one or the other because the bank was a mere pretense. The court found Banc Caribe to be only a convenient structure within which to hold Ponzi scheme money for the benefit of Mr. Homa, Mr. Pollock and Mr. Jones. [23] Therefore, the court determined that Mr. Pollock and Mr. Jones had violated the freeze orders by acting in concert with an enjoined person to dissipate protected assets, even if neither Mr. Horna nor a C4T entity had direct signatory authority over the accounts that transferred funds. Finally, the district court determined that, even assuming the existence of a legitimate banking relationship between Sunset Financial and Banc Caribe, the money in Banc Caribe's Paine Webber account was an asset of Sunset Financial, and therefore directly was subject to the freeze order. Mr. Jones admitted that the $2 million transferred from the Paine Webber account was being held by Banc, Caribe for the benefit of Sunset Financial. Mr. Pollock and Mr. Jones were aware of these facts, and that Sunset Financial's funds were subject to a freeze order, when they transferred $1,975,000 of that money from the Paine Webber investment account to Alpha Credit Bank in Athens, Greece. On August 31, 2006, Mr. Jones appeared as ordered by the court, but he did not offer a plan to purge his contempt. Mr. Jones therefore was confined to the Bureau of Prisons to encourage his compliance with the award. He was released on October 3, 2006, pursuant to an agreed order. As of March 5, 2007, Mr. Jones had paid $612,953.83 to the receiver. On August 28, 2006, Mr. Pollock timely filed his notice of appeal of the finding of contempt. Mr. Pollock did not appear at the August 31 hearing, and the district court issued a body attachment order against him. On September 7, 2006, the district court renewed the body attachment order against Mr. Pollock, again directing the United States Marshal to arrest him and bring him before the court. On October 17, 2006, the receiver began to pursue Mr. Pollock's assets. The court had learned from Mr. Jones that Mr. Pollock had used his portion of the proceeds from the sale of Banc Caribe to purchase a home in St. Lucia and three luxury yachts. The yachts were traced to CVI2, a closely-held Delaware corporation that had been incorporated in 2000 and that was owned exclusively by Mr. Pollock. The receiver filed a motion for a temporary restraining order against CVI2 and sought to be appointed temporary receiver of CVI2 in order to liquidate its assets. On October 24, CVI2 appeared through counsel and admitted that Mr. Pollock was part owner of CVI2 but contended that Kelly Pollock, Mr. Pollock's wife, was the controlling shareholder. CVI2 agreed to produce Kelly Pollock for a deposition on October 31 and further agreed that it would attempt to produce Mr. Pollock. On October 30, however, CVI2 sought permission to conduct the deposition from St. Lucia, rather than in Chicago. The court denied the request, and CVI2 refused to produce any witnesses for deposition. In response, the receiver moved for sanctions against CVI2 on October 31, 2006. The district court denied CVI2's motion to dismiss for lack of jurisdiction on November 6, 2006. On November 14, 2006, the court authorized the issuance of subpoenas duces tecum to Mr. Pollock and Kelly Pollock so that the receiver could explore their interests in CVI2 and the company's source of funding. The information was necessary to determine the receiver's motion, which alleged that CVI2's assets were subject to seizure to satisfy the contempt judgment against Mr. Pollock. The court specifically notified CVI2, Mr. Pollock and Kelly Pollock that failure to comply with the court's order could result in the court defaulting CVI2. The subpoenas issued on November 15, and depositions for Mr. Pollock and Kelly Pollock were scheduled for November 29, 2006. Process was effectuated, by fax and mail, and a process server attempted personal service at the Pollock's home on November 17, 20, 24, 28 and 29. CVI2 failed to produce any witness, and neither of the Pollocks appeared for deposition. The court determined that the. Pollocks' depositions were essential to the preparation of the receiver's case because the Pollocks were the only persons with access to and control over CVI2's corporate records. On December 14, 2006, the receiver moved for an order of, default against CVI2, a turnover of assets, injunctive relief and for his appointment as CVI2's receiver. On March 5, 2007, the district court determined that it had no lesser means of curing the Pollocks' willful refusal to comply with the court's orders than by defaulting CVI2. It did so, and took as confessed the allegations in the receiver's motion for the turnover of CVI2's assets. The court ordered CVI2 to turn over all of its assets to the receiver. CVI2 timely filed its notice of appeal on March 15, 2007. On March 19, 2007, CVI2's appeal was consolidated with the. appeals of Mr. Jones and Mr. Pollock.