Securities and Exchange Commission v. LaGuardia

Background

The Securities and Exchange Commission (SEC) sued Donald S. LaGuardia, Jr. The distribution plan states that the SEC alleged LaGuardia, through L-R Managers, LLC, carried out a scheme that defrauded the listed relief defendants and their investors. The plan states that LaGuardia misappropriated approximately $2.62 million and concealed part of the alleged misappropriation by recording it as a promissory note and receivable.

The court had previously directed The Northern Trust Company to liquidate assets held in custody for the relief defendants and transfer the proceeds, less a reserve for tax liabilities, to the court’s registry account. The plan states that approximately $876,700 was transferred as the Custodial Fund. The SEC separately transferred $169,711.55 to the account as a Fair Fund consisting of money collected in a related SEC administrative proceeding. The account held more than $1 million, including the Custodial Fund, the Fair Fund, and accrued interest.

The plan also states that the court entered final judgment against LaGuardia on August 30, 2023, ordering disgorgement of $590,424.00 and prejudgment interest of $141,566.55, while treating that obligation as satisfied by restitution and forfeiture ordered in a related criminal proceeding. This order concerns distribution of the funds; it does not set out a new decision on the underlying allegations.

The Approved Distribution Plan

The Custodial Fund is intended for clients of L-R Managers whose assets were held by The Northern Trust Company as custodian for the relief defendants on September 30, 2016, according to Northern Trust’s records. The Distribution Agent will calculate each eligible claimant’s custodial amount and distribute the available fund on a pro rata basis. A recipient generally must have a distribution of at least $10, and no recipient may receive more from the Custodial Fund than that recipient’s custodial amount.

The Fair Fund is intended for people who held investments in the relief defendants from January 1, 2016, through August 31, 2017, and suffered losses caused by LaGuardia’s misappropriation. The Distribution Agent will use the plan’s “rising tide” method, which compares each claimant’s recovery with the claimant’s investment and allocates payments to eligible claimants whose losses remain uncompensated. The plan excludes, among others, LaGuardia, the respondents in the related administrative proceeding, the relief defendants, certain related persons and entities, the Distribution Agent and its assisting personnel, and purchasers or assignees of eligibility for value.

The Distribution Agent must notify identified claimants, investigate certain written disputes, prepare payment lists, and administer the distribution. Claimants who do not respond or whose addresses cannot be verified may be treated as unresponsive and excluded from distribution. Administrative costs will be paid from the applicable fund, while Northern Trust remains responsible under the earlier order for the Distribution Agent’s and Tax Administrator’s fees and expenses.

Court’s Order

Judge Carter approved the plan and ordered that it govern administration and distribution of the funds. The Clerk was directed to transfer all funds in the court registry investment account under the case caption, net of investment costs, to the SEC according to the SEC’s instructions.

The order further directed the Clerk, after the transfer and upon the SEC’s request, to provide a case-history report or similar report containing information needed by the Tax Administrator. It modified the earlier order to direct The Northern Trust Company to transfer any custody-account assets later discovered, returned, or received to the SEC for inclusion in the Custodial Fund.

The order also modified the earlier order to authorize the SEC, after the transfer, to approve and arrange payment of taxes owed by the Distribution Funds directly from those funds without further court approval. Those payments must be reported to the court in a final accounting. The order records that the required investor-notice steps were completed and that no objections to the plan had been submitted.