S.E.C. v. Stewart

Background

Following a 2003 bench trial, the court had entered judgment requiring Allen Gottlieb to pay the Securities and Exchange Commission (SEC) $2,005,443.54 in disgorgement and $878,333 in civil penalties for violations of federal securities laws. He had made no voluntary payments. To enforce that judgment, the SEC restrained funds from the 2015 sale of a Florida property and caused $758,177.17 in sale proceeds to be deposited in the court’s registry.

Phyllis Gottlieb, Allen Gottlieb’s wife, sought release of some or all of the proceeds to the Phyllis J. Gottlieb Living Trust. The SEC opposed her request and sought release of at least half of the proceeds to satisfy Allen Gottlieb’s judgment.

Issues and reasoning

The court examined whether the proceeds could be used to satisfy Allen Gottlieb’s disgorgement obligation even though the property had been titled in the name of Phyllis Gottlieb’s living trust. Under the governing equitable principles, a court may reach assets held by a third party when the third party received ill-gotten funds and lacks a legitimate claim to them. A court may also reach property nominally held by a third party when the judgment debtor is its equitable owner—meaning that he effectively controlled and benefited from it.

The court found that the money used to acquire the property was connected to Allen Gottlieb’s misconduct. It relied on evidence that Phyllis Gottlieb had no independent employment, income, inheritance, or other identified assets that could have funded the purchase. It also found that Allen Gottlieb had transferred interests in two properties to her for a stated total consideration of $20, and that those properties funded the later purchase. The court treated that transfer as a gift of ill-gotten property in which Phyllis Gottlieb had no legitimate claim. On that basis, it found that $395,980 should be released to the SEC.

Separately, the court found that Allen Gottlieb was the equitable owner of the proceeds. It relied on his substantial involvement in purchasing and selling the property, his direction concerning where sale proceeds should be wired, his control of the family checkbook, his benefits from the property, and the absence of evidence that Phyllis Gottlieb contributed funds. The court held that this evidence shifted the burden to Phyllis Gottlieb to show that the assets legitimately belonged to her, including by proving the value of any direct contributions she made. The court allowed additional briefing and evidence limited to the dollar value of those contributions and the value added to the properties by her services. It rejected arguments that she automatically held a 50 percent interest because of her marriage or claimed ownership status.

The court also rejected reliance on Florida’s tenancy-by-the-entirety doctrine and homestead exemption. It held that those state-law protections did not prevent the federal court from reaching assets that Allen Gottlieb equitably owned when necessary to enforce the federal securities laws.

Disposition

The court denied Phyllis Gottlieb’s motion to release funds. Earlier in the opinion, it stated that the SEC’s motion was granted in part and that the SEC had shown entitlement to half of the proceeds. The conclusion states that the SEC’s countermotion for release of half the funds was GRANTED. The parties were ordered to propose a briefing schedule concerning the remaining proceeds.