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Securities and Exchange Commission v. Exotics.Com, Inc.

United States District Court, D. Nevada

October 23, 2017

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
EXOTICS.COM, INC., et al, Defendants.

          ORDER

          GEORGE FOLEY, JR. United States Magistrate Judge.

         This matter is before the Court on Plaintiff Securities and Exchange Commission's ("SEC") Motion to Establish a New Installment Payment Plan (ECF No. 531), filed on May 8, 2017. The SEC filed its Memorandum (ECF No. 536) on June 13, 2017. Defendant Gary Thomas Vojtesak ("Thomas") filed his Response (ECF No. 539) on July 7, 2017. The SEC filed its Motion to Strike, or in the Alternative, Reply to Defendant's Response (ECF No. 542) on July 18, 2017.

         BACKGROUND

         On December 22, 2006, the Court entered a default judgment against Mr. Thomas in the amount of $540, 000.00. Default Judgment (ECF No. 86). On March 3, 2014, the SEC filed a motion for an installment payment order against Thomas pursuant to 28 U.S.C. § 3204. Motion for Installment Payment Order (ECF No. 445). Thomas did not file a response to the SEC's motion and the Court entered an order on March 31, 2015 ordering him to make monthly installment payments of $ 15, 966.00 in satisfaction of the judgment, with the first installment payment due on April 1, 2014. Order (ECF No. 449). Thomas was also required to submit quarterly financial statements to the SEC. Id. On June 9, 2014, the SEC filed a motion for order to show cause why Thomas should not be held in civil contempt for failure to comply with the installment payment order. Motion for Order to Show Cause (ECF No. 450). The SEC deposed Thomas on October 14, 2014 at which time it learned that he had dissipated money from an account he controlled and invested it in another company. The Court ordered Thomas to deposit $700, 000 into the registry of the Court, but he never did. Order (ECF No. 473); Motion (ECF No. 536), pg. 3, ¶8. In December 2014, the SEC and Thomas entered into an agreement pursuant to which Thomas would pay $2, 000 per month on the judgment during the 2015 calendar year, and $3, 000 per month during the 2016 calender year. Memorandum (ECF No. 536), Tyler Declaration ¶ 4, Exhibit B. Based on this agreement, the contempt proceedings were stayed. Thomas did not make any payments pursuant to installment agreement. Accordingly, the stay was lifted on January 11, 2016. Order (ECF No. 489).

         The Court conducted a show cause hearing on July 27, 2016. The Court found that Thomas failed to comply with the previous order to make installment payments, submit quarterly financial reports, and to notify the SEC of changes in his financial condition. The Court directed the parties to work at establishing a new payment plan and stated that if they could not agree the Court would refer the matter to the Magistrate Judge. Minutes of Proceedings (ECF No. 512). The Court entered an order on August 9, 2016, finding Thomas in civil contempt and ordering him to provide bank statements and a variety of other business and financial information and records to the SEC. Order (ECF No. 515). The SEC asserts that Thomas failed to produce many of the ordered items and materially misrepresented his financial condition. Motion (ECF No. 536), pg. 4, ¶ 14. The parties were unable to reach agreement on a new payment plan. The SEC notes that Defendant Thomas made an offer to pay $150.00/month which the SEC rejected as unreasonably low. Accordingly, the SEC has brought this motion to implement a new installment payment plan. With interest calculated on the judgment through May 16, 2017, the amount owed is now in excess of $843, 386.55. Memorandum (ECF No. 536), Tyler Declaration ¶ 3.

         The SEC asserts that Thomas, by his own statements, has interests in six corporate entities: 44 Square, LLC; PVC OPPS, LLC; ZaaZoom Solutions, LLC; 4040 Holdings, LLC; I AM AKA, LLC; and Clean Shoe, LLC. Memorandum (ECF No. 536), pg. 6, Tyler Declaration ¶ 4, Exhibits E and F. The SEC further states that in 2016 Thomas was a signatory on bank accounts located at BBVA Compass Bank in the names of 44 Square, LLC, PVC OPPS, LLC, 4040 Holdings, LLC, and I AM AKA, LLC. These bank accounts were opened in early January 2016, but were closed in late May and early June 2016. New accounts were opened at Bank of America in the names of I AM AKA, LLC, 44 Square, LLC, and Clean Shoe, LLC. The address for the holders of the Bank of America accounts is Thomas's home address in Scottsdale, Arizona. A person named Andrea Skinner is listed as the signatory on these accounts. Id. at pg. 6. The SEC notes that during his testimony before the Court on July 27, 2016, Thomas admitted that the Bank of America accounts belong to him. He also testified that he had received $100, 000 from the sale of a bar business approximately six weeks before the hearing. Thomas claimed that he had suffered a financial loss from this sale based on the amount of money he had previously invested in the business. Id. at pgs 7-8; Tyler Declaration, ¶ 4, Exhibit D.

         Nelson Allen, a legal intern with the SEC reviewed and summarized the 2016 bank account records of the entities controlled by Thomas. Memorandum (ECF No. 536), Allen Declaration. During the calender year 2016, $592, 079.00 was deposited into the accounts and $577, 849.00 was withdrawn from the accounts. The SEC further states that Thomas uses these bank accounts to pay personal living expenses, including $16, 308 in dining expenses; $14, 678 in clothing expenses; $1, 790 on tickets, movies and concerts; $6, 823 in charges on Amazon; $2, 438 for gym dues and yoga sessions; $676 for manicures; and $4, 975 on iTunes. Mr. Thomas also paid $715 for court resurfacing; $4, 286 for photography; $5, 592 for a ski trip; and $7, 635 for a Fourth of July party. Additionally, Thomas used the accounts to pay for regular house cleaning, landscaping and pool cleaning services. Thomas also used these accounts to make the mortgage payments for the house in which he resides and which is titled in his father's name. Id. According to the calculations made by Mr. Allen, Defendant Thomas spent $103, 711.07 in 2016 on personal and family living expenses.

         Defendant Thomas states in his response to the SEC's memorandum that during 2015 and 2016 he did not generate any income, revenue or earnings from any business entity and was living on borrowed money. Thomas started a business which he thought would generate revenue and earnings. The business failed to yield any revenue and he needed to continue to borrow funds. Response (ECF No. 539), at pg. 4. Thomas attached as exhibits copies of twelve promissory notes that he allegedly executed and delivered in 2014, 2015 and 2016. Exhibits 9 and 10. Six of the notes were made by Mr. Thomas personally or in his name and on behalf of one of the limited liability companies. The other notes were made by one of the limited liability companies, usually "I am aka, LLC", which Mr. Thomas signed as the manager. The alleged loans evidenced by these promissory notes were made between October 25, 2014 and February 21, 2017 and total $594, 000.00. Most of the promissory notes are identical in form except for the date, amount and name of holder. They were generally payable in a lump sum within one or two years after the date of the note. A few of the notes were "[acknowledged and accepted by" the holder whose signature is allegedly contained on the note. Defendant Thomas has not provided any affidavits or declarations from any of the lenders/holders attesting to the authenticity of the notes, that funds were actually loaned to Mr. Thomas or his businesses, or whether any of the loans were repaid. Mr. Thomas did not provide any information as to what these loans were used for, other than to state that he paid his living expenses from the loans. Mr. Thomas has not provided any tax returns for the years from 2011 through 2016. It is therefore not known what he reported as taxable income during those years, or whether he even filed federal income tax returns.

         Defendant has submitted a declaration by an individual named Naomi Sanchez who identifies herself as a specialist certified in Quick Books accounting software. Response (ECF No. 539), Exhibit 16, ¶ 1. Ms. Sanchez states: "The first and most important thing I discovered was that the SEC had erroneously added an additional $300, 579.30 in bank deposits to the total." Id. at ¶ 4. She does not identify which deposits were erroneously added, however. The Court has added the deposits listed in the SEC's exhibit and they appear to correctly total $592, 079.00.

         Defendant Thomas states in the conclusion to his response:

If Thomas can afford to borrow money to live and fund his lifestyle through loans until one of his business ventures starts to generate cash flow, income and earnings, Mr. Thomas should have the right to do so. Being his lifestyle is afforded through loan proceeds and not earnings, 28 U.S.C. § 3204 is not applicable to Thomas and Thomas respectfully submits an offer of $150.00 per month toward this debt based on his limited ability to pay.

Response (ECF No.539), pg. 10.

         DISCUSSION

         28 U.S.C. § 3204 provides that if it is shown that a judgment debtor (1) is receiving or will receive substantial nonexempt disposable earnings from self employment that are not subject to garnishment; or (2) is diverting or concealing substantial earnings from any source, or property received in lieu of earnings, then upon motion by the United States and notice to the judgment debtor, the court may order that the judgment debtor make specified installment payments to the United States. An installment payment order may not be issued or ...


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