Opinion ID: 1984482
Heading Depth: 1
Heading Rank: 5

Heading: Who is entitled to the ESP funds?

Text: A. In April 1994, the district court ordered that bank checking account assets of ESP, McHose's family-owned corporation, be frozen pending the outcome of these proceedings, based on the State's contention that investors' funds were deposited into the account. In its May 24, 1995 order dismissing the aiding and abetting claim against McHose, the district court also ordered that funds in the frozen ESP bank account be released to McHose. The State appealed this issue in Diacide I and McHose referred to it in his notice of cross appeal. We find that nothing we said in Diacide I disposed of this issue and we will therefore consider is merits in this appeal. B. The State contends the district court erred in releasing from State control the ESP funds held in the frozen account. We disagree. The State does not dispute the fact that it did not name ESP as a defendant in these proceedings. As we noted in Diacide I, the record shows that McHose wrote checks from the ESP account, using investor money, between March 26, 1993 and April 30, 1993, allowed Diacide the use of ESP's checking account for Diacide business, and as early as September 1992 deposited investor funds into the ESP account. 561 N.W.2d at 379-80. This evidence was sufficient to justify the district court's issuance of a temporary injunction to freeze ESP's assets pursuant to Iowa Code section 502.604(2) to prevent further securities act violations. Cf. People ex rel. Edgar v. Miller, 110 Ill.App.3d 264, 65 Ill.Dec. 814, 441 N.E.2d 1328, 1332 (1982) (injunction that froze defendant's bank accounts was not overbroad and noting that freezing bank accounts of securities law violators appears to be an effective way of stopping violations of the securities act). However, nothing in Iowa Code chapter 502 gave the district court authority to dispose of ESP's assets held in the frozen bank account because ESP was not named as a defendant. Nor did the State assert a theory of piercing the corporate veil against McHose. Thus, while the district court had the statutory authority to freeze the assets of ESP held in the corporate bank account, it did not have personal jurisdiction to dispose of ESP's assets as part of the State's securities fraud case against McHose. Nothing we say on this issue, however, affects the State's right to pursue McHose's ownership interest in ESP to satisfy its judgment against defendant McHose. Accordingly, we affirm the judgment of the district court on this issue.