United States District Court, D. Maryland, Southern Division
J. Hazel United States District Judge
case began as a civil enforcement action on May 11. 2015. by
Plaintiff Securities and Exchange Commission
("SEC") against Michael K. Martin, Capital Source
Funding. LLC, and other Defendants, for violations of the
Securities Act and Exchange Act arising from a fraudulent
"prime bank" investment scheme allegedly
perpetrated by Defendants. ECF No. 1. Several non-dispositive
Motions are now pending for resolution. This Memorandum
Opinion and attached Order address the following Motions:
Motion for Clerk"s Entry of Default against Defendants
Capital Source Lending. LLC. and Defendants Capital Source
Funding. LLC. ECF No. 196; Motion to Refile Chapter 13
Bankruptcy, ECF No. 232: Motion to Withdraw as Attorneys for
Relief Defendants, ECF No. 234: Motion to Release Living
Expenses. ECF No. 236; Motion to Impose Civil Contempt
Sanctions against Mr. Martin. ECF No. 242: and
"Emergency Motion" to Release Living Expenses. ECF
No. 248. No hearing is necessary. See Loc. R. 105.6.
For the following reasons, ECF No. 196 is granted. ECF No.
232 is denied. ECF No. 234 is granted. ECF No. 236 is denied
as moot, and ECF No. 248 is granted. Additionally. Defendant
Martin is ordered to Show Cause why he should not be held in
Civil Contempt for failure to obey a Court Order.
Current and Future Release of Funds - FCF Nos. 232, 236, and
12. 2015. following the filing of the SEC Complaint, the
Court issued a Temporary Restraining Order ("TRO")
freezing the Defendants' assets. Pursuant to the terms of
the Temporary Restraining Order. Defendants were
"permitted to apply for relief from the asset freeze to
pay 'necessary and reasonable living
expenses."" ECF No. 19 at 1: see ECF No. 7
at 11. Since the inception of this case, the Court has
resolved no less than ten of Defendants' requests to
unfreeze the assets. See, e.g. ECF Nos. 19.50.81.
115. 122. 125. 129. 153, 184.201.221. 227. and 230. As
Plaintiff SEC has noted. Mr. Martin has now "nearly
exhausted the funds frozen for defrauded investors . ..
rendering the freeze meaningless." ECF No. 249 at
ECF No. 237 at 3 ("In total, despite having come into
the asset freeze reporting only $10, 785.35 in assets, (ECF
No. 41). $144, 903.44 of the $328, 546.46 in funds originally
frozen ... has been whittled away.").
clearly have the authority to enter freeze orders in an SEC
enforcement action." S.E.C. v. Dowdell, 1 75
F.Supp.2d 850. 854 (W.D. Va. 2001) (citing See SEC v.
International Loan Network. Inc.. 770 F.Supp. 678. 696
(D.D.C. 1991)). If the Court has "the authority to
freeze personal assets temporarily, it logically has the
'corollary authority to release frozen personal assets,
or lower the amount frozen.'" Dowdell, 175
F.Supp.2d at 854 (citing SEC v. Duclaud Gonzalez de
Costilla, 170 F.Supp.2d 427 (S.D.N.Y. 2001)). Courts are
called upon to weigh "the disadvantages and possible
deleterious effect of a freeze .. . against the
considerations indicating the need for such relief."
Id. (citing SEC v. Manor Nursing Centers,
Inc.. 458 F.2d 1082. 1105 (2d Cir.1972)).
the assets were first frozen nearly two years ago, the Court
attempted to strike an equitable balance. The Court was
concerned that some of Mr. Martin's expenses were related
to an expensive lifestyle. At the same time, the Court
acknowledged that Mr. Martin had existing leases and bills to
pay. and was mindful that seeking and securing employment may
not occur instantaneously. Thus, the Court was generous with
Mr. Martin's enduring requests to unfreeze the assets to
pay his living expenses. Mr. Martin has made some attempts to
find work, including driving for Uber and building mobile
apps. See ECF No. 248 at 1. However, 21 months after
the initial asset freeze. Mr. Martin still has not found a
way to independently support his livelihood, nor does it
appear that he has significantly modified his lifestyle.
juncture, the Court must make some adjustments to the future
release of funds. See Dowdell, 175 F.Supp.2d at 854
(discussing considerations to make when Court is called upon
to grant or deny release of funds). Therefore, this will be
the Court's final grant of Mr. Martin's request for
payment in full. See ECF Nos. 236 and 248. He will
be awarded a total of $11.077.00 for January. February, and
March 2017. For the three-month period beginning April 2017.
however, the Court will only grant up to one-third of this
amount (approximately $3692.00). and this is conditional upon
Mr. Martin's demonstration of securing a meaningful
income and restructuring his Finances. No further releases
will be authorized. Because the Court Finds that Mr. Martin
should be actively pursuing Financial self-sufficiency, the
Court denies Mr. Martin's request to utilize new income
to pay fees related to the Chapter 13 bankruptcy proceeding.
ECF No. 232."
Production of Documents and Civil Contempt -
ECF No. 242
Court entered a Scheduling Order in this case on February 18.
2016. ECF No. 143. beginning a protracted discovery dispute
between the SEC and Mr. Martin. The SEC filed several Motions
to Compel in an effort to retrieve documents from Mr. Martin.
ECF Nos. 157. 161. and 177. On December 29. 2016. the Court
issued an Order regarding the production of documents,
including emails from Mr. Martin's business account. ECF
No. 235. Mr. Martin filed a Response on January 5, 2017.
refusing to consent to the Court's Order, and stating
that his "5th amendment right afforded to me pertaining
to my emails before July 2014 as it outside the complaint by
SEC and they are just fishing and acting as an agent for the
government in a case in NY as they have very little evidence
as well." ECF No. 238 at 1. The SEC filed a Motion to
Impose Civil Contempt Sanctions on Mr. Martin. ECF No. 242.
The SEC now requests the Court to find Mr. Martin in contempt
and impose sanctions, including imprisonment.
moving for civil contempt must show, by clear and convincing
(1) The existence of a valid decree of which the alleged
contemnor had actual or constructive knowledge; (2) that the
decree was in the movant's "favor'; (3) that the
alleged contemnor by its conduct violated the terms of the
decree, and had knowledge (at least constructive) of such
violations; and (4) that [the] movant suffered harm as a
JTH Tax. Inc. v. H& R Block E. Tax Sens.. Inc.,
359 F.3d 699. 705 (4th Cir. 2004) (internal citations
omitted). Upon finding a party in civil contempt, the Court
may impose sanctions of a "'fine or imprisonment, or
both, at its discretion." 18 U.S.C. § 401.
the Court issued its Order on December 29, 2016. ECF No. 235.
Mr. Martin indisputably knew of the Order. The Order was in
SEC's favor, as it directed Mr. Martin to produce the
emails through providing his consent to Yahoo. Inc.
Id. at 1. Since the issuance of that Order. Mr.
Martin has violated the Court's instruction by tailing to
comply. Therefore, the Court finds it appropriate to order
Defendant Martin to "show cause" within 14 days
that he should not be held in contempt. Failure to do so may
result in monetary sanctions, imprisonment,  or both. The
Court also stresses that Plaintiff SEC may ...