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SEC v. Colello

United States Court of Appeals for the Ninth Circuit

January 6, 1998, Argued, Submitted, Pasadena, California ; March 18, 1998, Filed

No. 95-56688

Opinion

 [*675]  OPINION

GOODWIN, Circuit Judge:

This appeal challenges the right of the Securities and Exchange Commission (the "SEC") to recover, from a non-party to a fraud, investor funds traced to the "nominal defendant" in an action in personam. In the district court proceedings against a number of defendants, the SEC named Michael Colello as a nominal defendant after he had been dismissed as a party to the fraud. Upon a motion for summary judgment, the district court ordered Colello to disgorge over $ 2.6 million. On appeal,  [**2]  Colello argues that the district court lacked subject matter jurisdiction and that, in any event, summary judgment was in error. We have jurisdiction pursuant to 28 U.S.C. § 1291 and we affirm.

Facts and Procedural Background

This case arises from a scheme whereby a company called Cross Financial Services, Inc. ("CFS") and a number of individuals defrauded more than 700 public investors out of more than $ 21 million. The SEC claims that Colello received approximately $ 2.9 million of the $ 21 million. Colello claims that the money he received was to obtain letters of credit for CFS, that he did not keep most of it, and that what he did retain was payment for services rendered.

The SEC sued the perpetrators, initially naming Colello as a participant in the scheme to defraud. After losing on a motion for a preliminary injunction against Colello, the SEC amended its complaint to name Colello as a defendant "solely for the purpose of obtaining full relief." The SEC and Colello then cross-filed motions for summary judgment. The district court granted the SEC's motion for summary judgment and ordered Colello to disgorge $ 2,620,598.00 and pay $ 276,954.63 in interest. Judgments were [**3]  also entered against the other defendants, who are not involved in this appeal. Colello failed to pay the judgment against him on the order to disgorge. In a post-judgment proceeding, the district court found Colello in contempt for noncompliance. The district court ordered Colello to pay the judgment or surrender himself for arrest. It then stayed the arrest warrant pending Colello's submission of supplemental evidence that he is unable to comply with the district court's order.

Standard of Review

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139 F.3d 674 *; 1998 U.S. App. LEXIS 5016 **; Fed. Sec. L. Rep. (CCH) P90,166; 98 Cal. Daily Op. Service 1915; 98 Daily Journal DAR 2681

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. MICHAEL J. COLELLO, Defendant-Appellant, and CROSS FINANCIAL SVC., INC.; OWEN R. FOX; CARROLL E. SIEMENS; BRUCE FRANKLIN; DOUGLAS S. CROSS, Defendants.

Subsequent History: Subsequent appeal at, Remanded by SEC v. Segel, 225 F.3d 663, 2000 U.S. App. LEXIS 25823 (9th Cir. Cal., 2000)

Prior History:  [**1]  Appeal from the United States District Court for the Central District of California. D.C. No. CV-94-4228-RAP. Richard Paez, District Judge, Presiding.

SEC v. Cross Fin. Servs., 908 F. Supp. 718, 1995 U.S. Dist. LEXIS 20966 (C.D. Cal., 1995)

Disposition: Affirmed.

CORE TERMS

district court, funds, nominal defendant, disgorgement, summary judgment, securities law, legitimate claim, injunction, investor, cases, adverse inference, cause of action

Civil Procedure, Appeals, Standards of Review, De Novo Review, Judgments, Summary Judgment, General Overview, Summary Judgment Review, Standards of Review, Motions for Summary Judgment, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Jurisdiction, Subject Matter Jurisdiction, Jurisdiction Over Actions, Dismissal, Involuntary Dismissals, Failure to State Claims, Abuse of Discretion, Securities Law, Postoffering & Secondary Distributions, Recordkeeping & Reporting Requirements, Parties, Real Party in Interest, Joinder of Parties, US Securities & Exchange Commission, Judicial Review, Regulators, Penalties & Unlawful Representations, Evidence, Privileges, Self-Incrimination Privilege, Remedies, Injunctions, Permanent Injunctions