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SEC v. Hickey

United States Court of Appeals for the Ninth Circuit

November 5, 2002, Argued and Submitted, San Francisco, California ; March 7, 2003, Filed

No. 01-17027, No. 01-17214

Opinion

 [*1125]  TALLMAN, Circuit Judge:

This case presents us with the important and intriguing question of when a court may freeze assets of a nonparty to effectuate relief granted in a securities fraud enforcement action. We conclude that ] the inherent equitable power of a district court allows it to freeze the assets of a nonparty when that nonparty is dominated and controlled by a defendant against whom relief has been obtained in a securities fraud enforcement action.

These consolidated appeals arise from a scheme [**2]  that defrauded investors in a limited partnership of $ 15 million. Legal proceedings began in September 1994 when the Securities and Exchange Commission ("SEC") filed a complaint against John Hickey, Mamie Tang, and several corporate entities controlled by Hickey and Tang. This matter has traveled a long and winding path since 1994, and the trail continues to lengthen as Hickey is currently awaiting trial on a related federal criminal indictment.

Hickey and Tang collected money from investors by promising to develop property in California's Napa and Sonoma Valleys. The SEC complaint alleged that Hickey and Tang offered unregistered limited partnerships in Continental Capital Income Fund II ("Continental"), promising  [*1126]  that the partnership would commercially develop the wine country lands. In doing so, Hickey and Tang violated federal securities laws. In particular, they illegally offered for sale unregistered securities and made material misrepresentations in the prospectus distributed to investors. The material misrepresentations included false statements about their net worth (which was supposed to secure the investments) and the status of title to the California property.

On the [**3]  day the complaint was filed, the district court appointed a receiver to assume control of Continental. On December 2, 1994, the district court entered a default judgment against Hickey when he failed to timely answer the complaint. In February 1995, the default was vacated when Hickey and the SEC entered into a consent decree. In the con-sent decree, Hickey admitted violating securities laws and pledged that he "shall not assert" that he did not violate federal securities laws if the SEC sought disgorgement in the future.

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322 F.3d 1123 *; 2003 U.S. App. LEXIS 4033 **; Fed. Sec. L. Rep. (CCH) P92,292; 2003 Cal. Daily Op. Service 2073

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. JOHN A. HICKEY, Defendant-Appellant, and MAMIE TANG, CONTINENTAL CAPITAL FINANCIAL GROUP, INC.; CONTINENTAL CAPITAL INCOME FUND II; JM REGIONAL, INC.; CONTINENTAL CAPITAL PROPERTIES I, INC.; CONTINENTAL CAPITAL SECURITIES GROUP, INC.; CONTINENTAL CAPITAL INVESTMENTS, INC.; CONTINENTAL CAPITAL EMPLOYEES, INC.; CONTINENTAL CAPITAL SECURED PRINCIPAL WITH INCOME FUND I; CONTINENTAL CAPITAL PRIVATE EQUITY FUND I; D.E. FREY & COMPANY, INC., Defendants. SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. JOHN A. HICKEY, Defendant, and JOHN HICKEY BROKERAGE, Third-Party Appellant.

Subsequent History: Amended by, Rehearing denied by, Rehearing, en banc, denied by  SEC v. Hickey, 2003 U.S. App. LEXIS 13559 (9th Cir., July 7, 2003)

Reprinted as amended at  SEC v. Hickey, 2003 U.S. App. LEXIS 13563 (9th Cir. Cal., July 7, 2003)

Prior History:  [**1]  Appeals from the United States District Court for the Northern District of California. D.C. No. CV-94-03336-WHA. William H. Alsup, District Judge, Presiding.

 SEC v. Hickey, 2000 U.S. Dist. LEXIS 2361 (N.D. Cal., Feb. 18, 2000)

CORE TERMS

Brokerage, district court, freeze, alter ego relationship, piercing, alter ego, ownership, contempt, disgorgement, nonparty, securities law, courts, corporate entity, contempt order, purge, stock, equitable power, circumstances, shareholder, expenses, entity, froze, enforcement action, ancillary relief, impose liability, abused, ego

Securities Law, Civil Liability Considerations, Preservation of Remedies & Rights, Civil Procedure, Sanctions, Contempt, Civil Contempt, General Overview, Appeals, Appellate Jurisdiction, Justiciability, Mootness, Standards of Review, Abuse of Discretion, Judgments, Relief From Judgments, Independent Actions, Interlocutory Orders, Business & Corporate Law, Shareholder Duties & Liabilities, Piercing the Corporate Veil, Preliminary Considerations, Federal & State Interrelationships, Erie Doctrine, Alter Ego, Fraud & Misrepresentation, Estate, Gift & Trust Law, Estate Planning, Community Property, Family Law, Property Rights, Characterization, Community Property, Shareholders, Reverse Piercing, Remedies