Pursuant to 28 U.S.C. j 455(a), Michael Lauer hereby moves

UNITED STAT/S DISTRICT COURTSOUTHERN DISTRICT OF FLORIDA

Case No. 03-80612-Civ-M ARR A

SECURITIES AND EXCH AN GE COM M ISSION,

Plaintiff,

)

)

)

)

)

%FiLED by D.C.k

F,)..;-.(k:. ) r qE f (s. t: .-. w

STEVEN M LARIMORECLERK U. S. DIST. CT.S. D. of FLA. - MIAMI

M ICHAEL LAUER,

Defendant.

DEFENDANT M ICHAEL LAUER 'S M OTION FOR RECUSAL OF DISTRICT JUDGE

Pursuant to 28 U.S.C. j 455(a), Michael Lauer hereby moves for the recusal of the Judge

presiding over this case and for the Court to submit this case to the Clerk of the Court of the

United States District Court for the Southern District of Florida for random reassignm ent to

another Judge of this Court, preferably one sitting in M iami.l The circum stances of Lauer's third

motion to vacate the judgment ancl/or dismiss the case, DE2740, require the District Judge to

recuse himself because his impartiality m ight reasonably be questioned and because he has

personal knowledge of disputed evidentiary facts concerning this m otion. In fact, the Judge

participated in the events that form disputed evidentiary facts.

At the risk of oversim plification, Lauer's pending m otion to vacate and/or dismiss, 17E2740,

im plicates, in the first instance, the relationship between the SEC and Receiver Steinberg in their

performance in this case. That motion is attached hereto as Exh. 1,' the declaration of M ichael

Lauer (Exh. A to that motion) is attached hereto as Exh. 2.As the motion explains, both the

l W ith M iami unquestionably more convenient for al1 the parties, their lawyers, and other

participants, the recusal will prevent unnecessary expense to the govenunent, to the innocent

investors, to possible witnesses, to Lauer, and to counsel by permitting reassignment to ajudgesitting in M iami.

Case 9:03-cv-80612-KAM Document 2745 Entered on FLSD Docket 11/05/2013 Page 1 of 54

Receiver and the SEC have confinned that since, if not before, the inception of this case on July 8,

2003, they have claim ed to have had identical interests and goals, and a close joint working

relationship to accomplish those interests and goals that covered every single aspect of this case.

Many actions of the Reeeiver corroborate his and the SEC'S admission that they acted jointly, e.g.,

the Receiver's gratuitous (and investor-funded) opposition to Lauer's motion to sanction the SEC

for miseondud. DE1800, DE1812. W hat legitimate business was that ofthe Receiver's?

The pending m otion is unusual because to a substantial extent the Court's actions and

knowledge provide the evidentiary facts underlying the motion. W hat happened in the court

proceedings, not before, provides the evidentiary facts and the ultim ate issue. This is not like, for

example, an auto accident case where the evidentiary facts are what happened on the road. It is

unlike the summat'y judgment in SEC v. L auer, where the evidentiary facts involved such things as

whether it was undisputed that Lauer was a control person or an investment advisor or

manufactlzred fake portfolios. The Court had no personal knowledge of those evidentiary facts.

Likewise, the Court had no personal involvement or knowledge whether the SEC'S purported

authorization of this suit satisfied the 1aw or whether the SEC lied in its opposition to Lauer's

motion to transfer. This m otion is different and that fact is decisive. Etg-flhe Receiver is an officer

of the court . . . (andl the Receiver acts under the supervision of the court . . . .'' S.E.C. v. Elliott,

th ! jlqp,;953 F.2d 1560, 1577 (1 1 Cir. .

W hile the Court may conclude that the indisputable fads are suffieient to require granting

Lauer's motion to dismiss, it may decide otherwise. Both its failttre to grant Lauer's motion and

its presiding over additional proeeedings on the m otion would create a situation in which his

impartiality might reasonably be questioned, including its decision to permit or deny discovery

and/or holding a hearing. If the Court does not grant 17E2740 on the basis of Lauer's m otion

papers, one critical factual issue is the extent to which the SEC and the Receiver engaged in ajoint

2


operation and whether the Receiver acted as a defacto prosecutor against Lauer. This implicates a

wide range of events in the court proceeding in a case over which the Court presided for the past

nine plus years. There is much m ore evidence, som e of which the Court can best provide or at

least is within the Court's personal knowledge.

The Court observed the court-appointed Receiver in action, and indeed supervised him .

The Court personally approved the Receiver's submissions for compensation and reimbursement

of expenses, arguably evidencing a conclusion that the Court considered the Receiver's work

deserving of substantial compensation. The Coul't approved a wide variety of actions on the part of

the Receiver, including selling specific assets of Lauer's on the basis of the Receiver's

representations and over Lauer's objections; seizing property alleged to be Lauer's, such as the

GM C SUV, which appeared to be counter-productive from the standpoint of the ilmocent

investors', presiding over a hearing at which Soneet Kapila, whom the Receiver retained and

presumably paid, was the sole SEC witness on disgorgem ent; Lauer in contem pt and imposing

severe sanctions against him based in part on representations made by the Receiver as well as

actions that Lauer contends the Receiver took as part of his joint effort with the SEC and for the

purpose of furthering the constitutional and statutory objectives of the SEC; persuading the Court

on numerous occasions to deny Lauer the right to use own money to defend him self in this case as

well as in his criminal prosecution; and many others, including the Court's approving the

Receiver's spending Judivial Branch resourecs to eommunicate with the m edia and then defend

himself from Lauer's challenge on the ground that he was entitled to the sam e im munity as a

member of the media. DE500, 13E522, 13E539, DE620. One should not be ajudge of himself.

Lauer cites the Court's ex parte contacts with the Receiver, which undoubtedly occtzrred in

the form of billing records the Receiver provided to the Court and did not share in unzedaded form

with Lauer or the claimants (although he probably did with the SEC). Ex parte contacts may have


taken place in other contexts as part of the Court's supervisory role. Lauer is not necessarily

claiming that the Court knew that the Receiver was biased and a partisan. Lauer also is not

necessarily claiming that the Court would have been acting improperly if the Receiver in fact was,

as he should have been, a neutral and impartial Judicial Branch officer of the court. Thus, what

might ordinarily have been the most innocent of contacts, such as scheduling a hearing in this case

or something of that ordinarily benign nature, carried the strong potential to prejudice Lauer in this

CaSC.

The reason is that not only has the Receiver been tantamount to a covert party plaintiff and

comm unications have a way of impacting in nonobvious ways, but scheduling was an important

aspect of the case. Lauer was pressing for an early trial; the SEC was not ready and was

successfully opposing Lauer's multiple requests. The Receiver was publicly supporting the SEC

and opposing Lauer on bases that seem to have more to do with the interests of the SEC than the

Receiver, since the Rtceiver should have favored a quick resolution of Lauer's liability. E.g.,

DE414, 426. These are among the subjects of possible exparte eommunications that the Court

had with the Receiver.'çThe govermnent bears the burden of showing that the defendant was not

prejudiced by ex parte eommunications, and the burden is ûa heavy one.''' United States v. Simms,

3d 1347 1352-53 (11th Cir. 2004).385 F. ,

The Receiver was supposed to act as a fiduciary to the innocent investors. Both the

substance of the cx parte communications and the Court's treatment of the fee applications m ay

provide evidence of the appearance that his adions will not be impartial because he played a

substantial role in the facts of the case. That any judge or other public official might be reluctant

to admit an error having innocently, but unlawfully, paid someone in the neighborhood of $60

million in fees and disbursements cannot but lead an impartial obselwer to question the basis for a

decision on the pending motion as well as any proceeding that follow .

4


The likelihood of the appearance of lack of total impartiality flows from the long history of

this case.2 One aspect Of Lauer's motion is that the SEC and Receiver unlawfully, indeed

unconstitutionally, misappropriated and converted the Lancer Funds themselves and their assets.

As Lauer alleges in his pending m otion, the Funds and their directors were allegedly ilm ocent

victims, nothing more. Not the Court, not the SEC, not the Receiver had any legal right to

authorize or partake in a single interference with the directors in their management of the Funds.

present time to actions by the Court duringnine years overseeing this case not referenced in the text of this m otion as evide

nce of itspartiality or appearalw e of partiality or impropriety

, with one exception that provides directevidence of partiality or the appearance of partialaity

, nam ely, the Court's act of scanning the

SEC'S motion for summary judjment as its opinion on summary judgment. DE2 l 33. Thatconclusion is incontrovertible glven that the Court's opinion replicated numerou

s typographicalerrors that the SEC made in its motion. Am ong the strong evidence that the Court scamled theSEC'S motion was its reproduction of Mr. Tsakni's nam e as ét-l-skani,

'' compare DE1744,

p.10n.25, with DE2133, p.16n.25; copied tdexited'' for tdexcited,'' compare DE1744, p.22n.1 15,

with DE2133, p.32n.l20, copied tûtens of million of dollarsn'' compare DE1737-1, p.9, withDE2 133

, p.48; omitted closed parentheses, compare DE1744, p. 13n.67 and p.23n.1 16, withDE2133, p.2111.72 /nJ4.32n.121 ; omitted closed quotes, compare DE1744, p.3On.150, withDE2133, p.42n.156; omltted Cç!,'' compare DE1744, p.25n.130, p.26n.136, 17.27,M .140-41, and

p.28n.145, with DE2133, p.3514.133, p.3711.142, p.38.M .146-47

, and p.41n.153; omitted anumber, compare DE1744, p.25n.130, with DE2l33, p.35n.135; om itted a period after anabbreviation, compare DE1744

, p.51123, with DE2 133, p.911.24; put a comm a before anam persand, compare DE1744, p. 10, n48, with DE2133, p.17, n.51; included an imgroper space,compare DEl744, p.14n.70, with DE2133

, p.22.n.75; made an inconsistent capitallzation,compare DE1744, p.30n.150, with DE2133

, p.4214156; ended footnote with a semi-colon,

compare DE1744, p.1 1n.55, with DE2133, p.18n.59; and ended footnote w ithout punctuation,

compare DEl744, p.15n.74 and p.14n.81, with DE2133, p.23n.81 tzn#p.24n.8S. The list is notexhaustive.

2 In this motionto recuse, Lauer does not refer at the

M oreover, the scarming

Lauer's opposition even thoughof the SEC'S original motion meant that the Coul'ttotally ignored

Lauer usually relied on the samedocument, such as a witness's deposition or a witness's testimony

02-20473, where the Court relied on testimony cited by the SEC,

references to the testimony from the same trial transcript. The Court ruled that the portions of adeposition cited by the SEC were irrefutable

, while the portions cited by Lauer were tmworthy ofbelief as a m atter of law. And it did this without giving reasons other than the portions cited by

Lauer were tthyperbole,'' j.c., exaggeration, a credibilityjudgment, forbidden on a motion forsummal'y judgment, except, perhaps in an Alice in W onderland world where a Court places theburden of proof on the nonmoving party on a motion for summaryjudgment. See DE2133, p.3Cç-l-he failure of proof conoerning an essential element of the non-movingparty 's casenecessarily renders all other facts im material and requires the court to grant the m otion for

summary judgment.'') (Emphasis added.) That does not sound like what Congress meant by theword û'impartial.''

v. Kelly, Crim . No.but neverthelessstruck Lauer's

source,

in U.S.indeed, the sam e


In order to create and maintain a receivership there must be strong evidence that the subject of the

receivership comm itted fraud or other serious wrongdoing that necessitated the extraordinary

f i hi Santibanez v. W ier M cM ahon tfr Co., l05 F.3d 234 241-42 (5th cirremedy o rece vers p.

, .

th Cir 1 994). Aviation Supply Corp. v. R.S.B.I1997); In re McGaughey, 24 F.3d 904, 907 (7

. ,

th i l 993). see Piambino v.

Bailey, 757 F.2d 1 1 12Aerospace, Inc., 999 F.2d 314, 316-17 (8 C r. ,

,

th i 1985). The com plaint itself dem onstrated that the hedge funds were no more than1 131 (1 1 C r.

alleged victim s and every day thereafter that position was reinforced.

ld in S E C v. Elliott 953 F.2d 1560 1573 (1 1th Ck 1992): tûAThe Eleventh Circuit he . . . ,

, .

debtor catl maintain a conversion action if the ereditor seriously interferes with the debtor's

/ Sales Co. v. Diamond Chem. Co., 766 F.2d 364 368 (8th Cir. 1985).:5ownership rights. Chem ica

,

Thus, this Court might have to allocate liability between the SEC and the Receiver, the latter

someone over whom the Court has had supervisory power and the form er an entity with which it

had extensive contact for over nine years and who has acknowledged operating in tandem with the

Receiver for the entire nine years.

Aside from constitutional issues, there are comm on-law issues where the Court was

involved in events that provide the evidentiary facts. Thus, it is evident that the Court

, along with

its predecessor, did not take sufficient steps to assure that the Receiver, whom it supervised, w as

disinterested, as required by law . In re Congoleum Corp., 426 F.3d 675 (3d Cir. 2005); In re

th cir 2000); In re Grabill Corp., 983 F.2d 773 (7tb Cir.Milwaukee Engraving Co., 2 l 9 F.3d 635 (7 .

l 993)) ln re Keller Financial Serv. ofFla., Inc., 248 B.R. 859 (S.D. Fla. 2000). It should go

without saying that a receiver carmot be an agent of a party, like the Receiver was for the SEC in

this case. Unitedstates v. Smallwood, 443 F.2d 535, 539 (8th Cir. 1971).

13E2740 will require the Court to revisit its prior decisions on the payment of fees and

expenses that it awarded to the Receiver. Lauer's first point is that fees are neither lawful nor


warranted. Moreover, both the SEC and the Receiver may be liable for their return. A recent Fifth

Circuit case so held on the basis of its decision that antedated the creation of the Eleventh Circuit

.

th cir 20 l2) (footnotes and dtations omitted):

Netsphere, Inc. v. Baron, 703 F.3d 296, 3 1 1-12 (5 .

receivership fees andexpenses tlare a charge upon the property administered

.''

. . W hen a receivership isimproper or the court lacks equitable authority to appoint a receiver

, the party thatsought the receivership at times has been held accountable for the

receivership feesth cir 1932).

and expenses. W F. Potts Son (i Co. v. Cochrane, 59 F.2d 375-78 (5 .Baron relied on a somewhat later case that made the same point

. Porter v. Cooke, 127th cir 1942). That court held that ûtthe parties whose property has beenF.2d 853 (5 .

wrongfully seized are entitled, on equitable principles, to recover costs from those whoh

ave wrongfully provoked the receivership. 1d. at 859.''

W hen a receivership is proper, the general rule is that

ln any event, one area of established exparte contact between the Court and the Receiver

was in connection with the Receiver's interim fee applications. The redacted public versions of

those fee applications do not infonu the reader specifically what the lawyer's or paralegal's time

was billed for, except in the most general tenns. Obviously, the Court received additional

information as unredacted subm issions and possibly in some other form , including inform ation

about the time the Receiver billed to the Funds to help the SEC or DOJ in work that the United

States Treasury should have paid for. Exparte comm lm ications could both provide evidence of

partiality and evidence that could well have prejudiced Lauer with the Coul't.

Some of the granted interim requests for paym ent for senrices or reim bursement, moreover

,

may be questionable afld may demonstrate the Court's excessive deference to the Receiver's

requests, which, to understate the facts, were quite large.W ith Lauer forced to proceedrr/ se, the

interests of the ilmocent investors appears to have been neglected. Courts have an obligation to

review paym ents to receivers. United States v. Code Products Corp., 362 F.2d 669 (3d Cir. 1966);

Donavan v. Robbins, 588 F.S. 1268 (N.D. 111. 1984). Moreover, the proper compensation depends

in pal4 on the results achieved, which are dubious and remain to be reevaluated. v%E. C. v. Elliott,

th cir 1992). lt also depends on the size of the receivership estate. If that953 F.2d 1560, 1577 (1 l .


was unlawfully increased by hundreds of millions of dollars partially through the actions of the

Court (and its predecessor), that involvement by the Court and its precedessor independently

reflects on the proper scope of the Receiver's efforts and his compensation. S.E.C. v. W L . M oody

'd em 519 F.2d 1087 (5th Cir 1975).d: Co., Bankers, 374 F.S. 465 (S.D. Texas 1974), aff m .,

.

Virtually all of the Receiver's efforts were m isdirected to liquidating the Funds and attempting to

eollect their debts, which he had no right to do, as discussed in 17E2740. At issue are the propriety

of virtually all of the Receiver's actions and transactions. Since receivers do not receive paym ent

for difficulties they created, there will be major issues of Receiver compensation

, issues on which

the Court has passed once on the basis of exparte communications.Netsphere, Inc. v. Baron, 704

th cir 20 l 2)' United States v. f archwood Gardens

, Inc., 404 F.2d 1 108 (3dF.3d 296, 313-14 (5 . ,

Cir. 1968). These, and many more, issues are involved in Lauer's pending motion to vacate and

dism iss.

M oreover, it appears that the Court allowed the Receiver to recover fees for the preparation

of interim fee applications without curbing the am ount in any way, despite Lauer's heated

objections. Lauer recognizes that fees on fees are standard in bankruptcy litigation, but that is

because bankruptcy courts are obliged by statute to pay fees on fees because the statute requires

the preparation of fee applications. See Donovan v. Robbins, 588 F.S. 1268, 1273 (N.D. 111. 1984);

In re M esa Air Group, Inc. , 449 B.R. 441 tBkrtcy. S.D.N.Y. 201 l); In re Borders Group

, Inc., 456

B.R. 195, 208-09 tBkrtcy. S.D.N.Y. 201 l). Mesa Air Group, supra at 445, stated that since 'tfee

applications are required under the Bankruptcy Code, courts m ay award fees for the tim e spent in

actually preparing a fee application.

''

The governing law appears to deny receivers the right to obtain fees on fees absent a statute

that allows them . That includes enforcem ent actions brought by the SEC. S.E. C. v. W L . M oody tt

'd 5l9 F 2d 1087 (5th Cir 1975) stated:Co., Bankers, 374 F.S. 465 (S.D. Texas 1974), aff mem., . . ,

8


As defendant contends, time and effort spent ané expenses incurred in proving feesare not compensable. In re Imperial ç1400'' National

, Inc., 432 F.2d 23 22 239 (31-d Cir.'d cir 1970); In1970); United States v. Larchwood Gardens, lnc., 420 F.2d 531, 534 (3 .

re Polycast Cop ., 289 F.supp. 712, 719 (D.Conn. 1968).

ln re Imperial ''400 '' National, Inc., supra (footnotes and citations omitted), held:

Although the SEC had access to at least the attorney's time sheets, only a total hourlyli

sting was supplied to the court. Neither the District Court, nor this court in reviewingthe record on appeal, can be expected to render an appropriate decision in the absenceof adequate time records. . . . . lt may also be possible that tim e not legallycompensable, such as that spent in applying for or in defending interim fee awards

. . .was included in the accounting. Furthermore, the asstlm pticm that the trustee or hisattorney are entitled to fees nonnally charged private clients is unwarranted

.3

The tens of millions of dollars the Court awarded the Receiver as fees and expenses were

neither the Court's to award nor the Receiver's to pocket or expend. The Funds were those of

innocent investors and bystanders, as has been conceded. The Court

, the SEC, and Receiver

unlawfully and unconstitutionally took control of the Funds and their assets. That act totally

transfonned this case to Lauer's enormous prejudice. Without taking over the Flmds and taking

their money, vi> ally all of the assets on which the Receiver has thrived for the past ten years

would have been beyond his reach. The only assets the Court and the Receiver could lawfully

reach were those of Lauer and Lancer Management 1 and I1, and the Receiver and the SEC have

taken every dollar it could from them . W ithout Lancer's records it is impossible to know the

amount of their assets that would have been available to the Receiver to pursue Lauer if the law

had been followed. lt is quite likely that it would have been under $ 1 million, not many tens of

m illions of dollars he has received for himself and his colleagues and expended in this and related

CaSCS.

Lauer contends that each time the Court approved of a payment to the Receiver (out of the

assets of the Funds maintained by the Judicial Branch) it engaged in one of a series of tmlawful if

3 Likewise, no party can be expected to mount a challenge to a fee application in the absence ofadequate time records.


not unconstitutional acts. Not only were the Funds beyond the reach of the Court, other members

of the Judicial Branch, and the Executive Branch; but the requests approved by th

e Court funded

the Receiver's unconstitutional action taken with the SEC against Lauer.Even if the Court acted

in absolute good faith, the involvement of the Court in the challenged adions is b

ound to affect the

perception of any proceedings conducted by the Court on the question of whether they are fair and

impartial. Can ajudge who allegedly gave away sixty million dollars of innocent investors'

money to overreaching lawyers and others dispassionately decide whether it acted properly while

m aintaining the appearance of impartiality?

Also supporting recusal is that further proceedings are going to take place in front of the

Court and not in front of the Court and ajury. The Court will be the sole facttinder of the

evidentiary facts. That is a signiticant factor in deeiding whether to reassign a case Eûfor the

judge's sake and the appearance of justice.'' United States v. Robin, 553 F.2d 8, 10 (2d Cir. 1977)

(en banc); United States v. Frizzo, 563 F.S. 592, 595 (E.D. Pa. 1983), a-y'd mem, 734 F.2d 984 (3d

Cir. 1984). The Court as a trier of fad will be required to judge someone it supervised. S.E.C. v.

' 953 F 2d 1560 1588 (11th Cir 1992).Elllott, . , .

Any further payments to the Receiver of assets belonging to the Funds and its innocent

investors would be unconstitutional and any further expenditure by the Receiver likewise would be

unconstitutional. lt also would constitute a defacto rejection of Lauer's pending motion before it

had even been answered. Because of the Court's prior instances of approving payments to the

Receiver, any continuation of payments by the Court to the Receiver would also be perceived,

even if not legitim ately, as an act of self-protection

, if not attempted self-absolution. Paym ent

alone could implicate Section 455. Section 455 of Title 28 requires disqualification as follows:

(a) Any . . . judge of the United States shall disqualify himself in any proceeding inwhich his impartiality might reasonably be questioned

.

(b) He shall also disqualify himself in the fbllowing circumstances:


(1) Where he has a personal bias or prejudice coneerning a party, or personalk

nowledge of disputed evidentiary facts concem ing the proeeeding . . . .

The Supreme Court described the section in f ill'eberg v. Hea1th Services Acquisition

Corp., 486 U.S. 847, 859-61 (1988):

knowledge of a disqualifying circumstance

does not eliminate the risk that tEhis impartiality might reasonably be questioned'' by

other persons. M oreover, advancem ent of the pum ose of the provision - to

promote public confidence in the integrity of thejudicial process . . - does notdepend upon whether or not the judge actually knew of facts creating an appearanceof impropriety, so long as the public might reasonably believe that he or

she knew.. g'rhe judge) is called upon to rectify an oversight and to take the steps necessary tomaintain public confidence in the impartiality of thejudiciary

.

of j 455(a). The judge's lack ofm ay bear on the question of remedy

, but it

Scienter is not an elem ent of a violation

The Suprem e Court reiterated its position in f iteky v. United States

, 510 U.S. 540, 555, 564

(1 994): trisqualification is required if an objective obsen'er would entertain reasonable questions

about the judge's impartiality. lf ajudge's attitude or state of mind leads a detached observer to

conclude that a fair and impartial hearing is unlikely, the judge must be disqualified.'' The

f rtiality is sufficient. Accord, United States v. Kelly, 888 F.2d 732 744-45 (1 1thappearance o pa ,

6 F 2d 716 720-2 1 (1 1th Cir 1988). itlnherent in j 455(a)'sCir. 1989); In re Faulkner, 85 . , .

requirement that a judge disqualify himself if his impartiality might reasonably be questioned is

the principle that our system of justice must satisfy the appearance of justice.'' Parker v. Connors

1 lth cir 1988) quoting Oyut v. United States, 348 U .S. 1 1, 14Steel Ct?., 855 F.2d 2510, 1523 ( . ,

(1 954), and f ilieberg, supra.

The Court's participation in what Lauer contends was an unconstitutional conversion by

authorizing the Receiver to spend money belonging to the ilmocent Flmds and izmocent investors

goes to the heart of this case. This includes the extent of the Court's knowledge of the controlling

facts. In any event, the Court would be judging its own actions in deciding Lauer's motion. That

at least creates the appearance of lack of impartiality and impropriety. M any of the m ost important

evidentiary facts in this case concern the relationship of the Receiver with the SEC, the DOJ, and


the Court. The Court hms had extensive contact with the SEC and the DOJ for over nine years in

this case and related cases and has learned tirst-hand much that will parallel evidence presented to

the trier of fact. CIEA) judge calmot be, or carmot appear to be, impartial if he has personal

k.n ledge of evidentiary facts that are in dispute.'' Onishia v. Hopper, 126 F.3d 1 323 1341 (1 lthOw

,

th i 1 987); accord, EdgarCir. 1997), quoting Unitedstates v. Alabama, 828 F.2d 1532, 1545 (11 C r.

th cir 1996).v. KL ., 93 F.3d 256, 259 (1 1 .

Finally, the additional burden on the judicial system will be eminently manageable. The

issues involved in 17E2740 require only general awareness of the prior proceedings. W hether the

SEC and the Receiver and whether the DOJ, the SEC, and the Receiver engaged in concerted

action requires exam ination of com munications am ong them, not relitigating the lm derlying issues

in the case. W hether the SEC and Receiver unlawfully removed the Funds' directors and took

over the Funds does not require relitigating the individual actions taken by the Receiver in his

management of the Funds. M oreover, the SEC and the Receiver have admitted their joint

operation, and the Receiver has continned his joint effort with the DOJ. Also, before a1l is said

and done, it may be necessary for the Coul't and its predecessor to give testimony. W hile Lauer

recognizes that judicial testimony is not the preferred course, there m ay be instances in which only

the Court and the Receiver or his attorneys were present, and they, of course, are interested

persons.

If the Court denies the recusal motion it will hear and rule on the pending motion to vacate

and dismiss.W hichever way the Court rules, the losing party is likely to appeal. If Lauer appeals,

one of the issues he will raise will be the correctness of the Court's denying his recusal m otion.

the Coul't of Appeals reverses that decision, it will necessitate a full duplication of the proceedings

on Lauer's pending motion - likely to be followed by another appeal. That consideration militates

in favor of recusal. This case has been pending over ten years and may be the oldest in the


Southern District of Florida, open or closed, that is active. lt would create a readily avoidable

miscarriage of justice to require the relitigation of the pending motion that would extend the

duration of the case even further.

W HEREFORE, the District Judge should recuse him self from this case.

spe tf 11y ub itte>

David M . DorsenSuite 500

2900 K Street, N .W .

W ashington, DC 20007

Telephone: 202 204-3706

E-Mail: [email protected] ey for M ichael Lauer

Dated: October 31, 2013

13


Exhibit l

14


Case 9:O3-cv-8O612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 1 Of 21

UNITED STATES DISTRICT COURTSOUTHERN DISTRIG OF FLORIDA

Case No. 03-80612-Civ-M ARRA

SECURITIES AND EXCHANGE COM M ISSION,

Plaintiff,)

)

)

1

FILED by .C,

0C1 t 22Q

s'rEvnN M LAqlvorxgCLERK LJ à Dls'r. cT.s

. o of FLA . - MIAMIM ICHAEL LAUERS

Dcfendant.

M ICHAEL LAUER'S THIRD- M OTIO

- N TO VACAT-E THE JUDGM ENT AND/ORDISM ISS THE COM

PLAINT O- N THE

-GROUN-D, INTER ,4ZM . THAT THE SEC'SAND THE COURT-APPOINTED RE

- C-E-IVE- R-'S JOINT OPEM T-ION AGM NSTLAUER VIOLATE

-D SEPAM TION OF POW ERS AND DUE PROCESS

Pursuant to Rules 12(h), 60(b)(4), 60(b)(6), and 60(d)(3), Fed.R.Civ.Proc., M ichael Lauer

tiles this motion to vacate the judgment and dismiss the complaint. From the inception of the case

,

it now appears, plaintiff SEC, part ofthe Executive Branch

, and the Rectiver, ajudicial officer

appointed by the District Court, willfully fonned a comprehensive joint operation against Lauer

.

The operation violated the constitutional doctrine of Stparation of Powers, the Due Process Clause

of the Fifth Amendm ent, and constituted a fraud on the court. M oreover, the Court has lacked

subject-matterjurisdiction over the Lancer hedge funds. The Court must dismiss this action.

1.

The judgment is void on five legal grounds: f'irst, SEC and Receiver violated Rule 60(b)(4)

h 252 F 3d 1260 1263 1265-66 (1 lth Cir 2001)by depriving Lauer of Due Process. Burke v, Smit , . , , .

(ksGenerally, a judgment is void under Rule 60(b)(4) çifthe court that rendered it lacked

jurisdiction of the subject matter, or of the parties, or if it acted in a marmer inconsistent with due

process of 1aw.'''); accord, Oldfeld v. Pueblo de Bahia L ozw, SA., 558 F.3d l 2 1 0, 12 15 n. 13 (1 l tN

Cir 2009) (quoting Burke v. Smith); Bass v. Hoagland, l 72 F.2d 205 209 (5th Cir 1 949).


Case 9:O3-cv-8O612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 2 of 21

Second, altem atively, they violated Rule 60(b)(6). uln simple English, the language of the

çother reason' clause, for all reasons except the tive particularly specified, vests power in courts

adequate to enable them to vacate judgments whenever such action is appropdate.'' Klapprott p.

United States, 335 U.S. 60 l , 614- 15 (1 949,)) United States v. Certain Real Property L ocated at

th cir I 997) (Rute 60(b)(6) is ûGa grand reservoir of an equitable

Route 1, l26 F.3d 13 l4, l3l 8 (1 l .

i in a particular casen3l' Seven Elves, 1nc v. Eskenazi, 635 F.2d 396,

402 (5th Cirpower to do just ce , .

tb Cir l 963.).

1 98 I ) (same); see Bros Inc. v. W E. Grace Mfg. Co., 320 F.2d 594, 609- l 0 (5 .

Third, their actions constituted a fraud on the court tmder Rule 60(d)(3). Hazel-Atlas Glass

Co. v. Harford-Empire Co., 322 U.S. 238, 245-46 (1944) (tk-l-his is not simply a case of a

judgment obtained with the aid of a witness who. on the basis of after-discovered evidence

, is

believed possibly to have been guilty of perjury. Here, . . . we tsnd a deliberately planned aad

carefully executed scheme to defraud not only the Patent Offlce but the Circuit Court of

Appeals.''); Aldana v. De1 Monte Fresh Produce, N A., 578 F.3d 1283, l 288-89 (1 101 Cir. 20û9);

d 959 966 (1 lti' cir. 2û00)) Rozier v. Ford Motor Co.,

573 F,2d 1332.gfurphy v. FDIC, 208 F,3 ,

,

tb Cir 1978); In re ë'eé'f Texas Marketing Corp., 12 F.3d 497, 503 n.3 (5* Cir-

l 994)9 seel 339 (5 .

SEC v. Wheeling-pfttsburgh Steel C'orp. , 648 F.2d l l 8, 127 (3d Cir. 1981) (the t'ultimate question

gisq whether the SEC is , . . abusing the court's process').

This case is squarely within Hazel-Atlas because the frauds here implicated officers of the

court, including government attorneys and attorney-agents of the District Court. A signiiicant

fraud coupled with attonwy involvement constitutes a fraud on the court. Judge Friendly stated in

Kuplèrman v. Consolidated Research & Mfg. C(2rp., 459 F.2d 1072, 1078 (2d Cir. 1972):

W hile an attorney tçshould represent his client with singular loyalty that loyalty

obviously does not demartd that he act dishonestly and fraudulently; on the contrary hisloyalty to the court, as an omcer thereof

, demands integrity and honest dealing with thecourt. Arld when he departs from that standard in the conduct of a eas

e he perpetrates afraud upon the court,''

7



tl, cir j qgc)Kerwit .k./et/. Products, Inc. v. N &H. lnstr. , Inc-, 6 16 F.2d 833, 836-37 (5 . ,

binding on this Court, embraced Kupferman. Likewise, Rozier, supra, p.l 338, states that fraud Rby

a party in which an attorney is implicateds will constitute a fraud on the coui '; accord

, Kenner v.

'h 68) (a fraud on the court is i:a fraud pemetrated by

Commissioner, 387 F.2d 689, 691 (7 Cir. 19

officers of the court'' impairing tlits impartial task of adjudicating cases that are presented tbr

adjudication''); Aoude v. Mobil Oil Corp., 892 F.2d 1 t 1 5, 1 1 1 8-19 ( lSt Cir. l 989) (citing Rozierjk

F 2d 984 986 (4th Cir. 1987)*, Charles Alan

Cleveland Demolition Co. v. Azcon Scrap Corp., 827 . ,

Wright e/ a1., Federal Practice & Procedure j 2870, pp.583-85 (2d ed. l 995); 12 M oore, Federal

Practice !( 60.2 1 g4)(a), p.60-51 (3d ed. 2007). The SEC, moreover. operates within the federal

t and are held to a higher standard, United States v. Corona, 55 1 F.

2d l 386 1 39l (5thgovenunen , ,

Cir. 1977), while the Receiver is a fduciary.

Fourth, pervasive government misconduct by plaintiff SEC requires dismissal of the

complaint a.s well as vacating the judgment. Gardner v, United States, 21 1 F,3d 1305, 1309 (D.C.' C mbs v. Rockwell .Jrl/ '1 Corp. , 927 F.2d 486, 488 (9th Cir. l 991); Unitedstates v

.

Cir. 2000), o

tll Cir 1994); United States v. Miller, 41 1 F.2d 825 832 (2d Cir. l 969);Bahl, 25 F.3d 904 ( l 0 .

,

United ,skJ/e-j' v. Consolida'ed L aundries Corp., 29l F.2d 563, 570-71 (2d Cir.196l).

Fifth, the Court lacks subject-matterjurisdiction over the hedge funds, disctsssed below .

II.A.

The 1aw requires a receiver, appointed by the court and operating under the auspices of the

court, to be neutral or impartial in litigation, like the judge who appointed him. 800th v. Clark, 58

U.S. 322, 331 (1 854) ((da receiver is an indiffkrent ptrson between the partiesn); Stetiing v.

th Cir 1998) (i'A receiver is a neutral court officer appointedStewart, 158 F.3d 1 199, 1201 n.2 (1 1 .

''' f iberte Capital Grtp;w, f f C p. Capwîll 462 F.

3d 543 55l n.2 (6S' Cir. 2006)by the court . . . . ); , ,

(*$A receiver is an indifferent person between the parties, appoimed by the court . . . .''); f edbetter

3



th Cir 1944) ('%a receiver is the agent only of

v. Farmers Bank d: Trust Co., 142 F.2d 147

, 150 (4 .

the court appointing him; he represents the court rather than the parties

.''). A receiver cannot be

partisan or biased. The SEC, on the other hand, is part of the Executive Branch

, with the mission

to take action against persons it asserts violated the laws passed by the Legislative Bra

nch.

'rhe roles of the three branches of the fcderal government diflkr and they must be k

eptseparate. Separalion of Powers was a principal iss

ue at the Constitutional Convention. The

Federalist Papersnpassim. The teaching of Fedeyalist No

. 78 is that a neutral and independent

judiciary to protect the citizenry is a cornerstone of constitutional Separation of Powers:

g'Iqhough individual oppression may now and then proceed rrom the courts ofjustice

,the general Iiberty of the people can never be endangered from that qum er; I

mean solong as thejudiciary remains truly dfstinct from both the legslature and the executive

.For I agree that bithere is no liberty if the power of judging be not separated from thelegislative and

executive powvrs.''l

Justice Scalia quoted this language in his opinion for the Court in Plaut v. Spendthrp Farm,

Inc., 514 U .S. 21 1 , 222-23 (1995). Any signiiicant commingling of the branches of the federal

government is unconstitutional. h'Iistretta v, United Statess 4S8 U

.S. 36l (1989); Bowsher v.Synar, 478 U .S. 714, 725 (1986) (Burger, C.J). In Young p. United States

, 48l U.S. 787 (1987),the Supreme Cotu't reversed a conviction whe

n a district court, after defendants allegedly violated

an injunction it issued following their infringement of plaintiffs trademark, appointed plaintiff's

attom eys as special prosecutors to prosecute the deftndants for contempt. Concurring in the

reversal, Justice Scalia wrote (481 U.S. at 816):

Prosecution of individuals who disregard court orders (except orders necessary toprote

ct the courts' ability to function) is not an exercise of tkgtlhejudicial power of theUnited States

,'' U.S- Const,, Art. 111, jj 1, 2. . . . The judicial power is the power todecides in accordance with law

, who should prevail ûn a case or controversy. . . . It is

' The Anti-Federalists favored Separation of Powers at least as much as the Federalists

. Herbert J.Storing, What the Anti-Federalists Were For 54-55, 59-63 (U. Chi. Press 19: 1); The Anti-Federalist Papers 169. l 7 1-72, 240, 251

. 335 (Ralph Ketcham, ed.) (M entor 1 986). The Atlti-Federalist posttion has played an important role in a number of cases

. E.g., District of Columbia v.Heller, 554 U ,S. 570 (2008); M clntyre v. Ohio Elections Comm'n

, 514 U.S. 334 (1994).



accordingly well established that the judicial power does not gtneraliy include theower to pro

secute crimes.''P

Courts of appeals have condemned such improper arrangemeats in a variety of conttxts

. In

FEC v, NRA Political Victory Fund, 6 F.3d 821 (2d Cir. 1993), cert. dism 'd, 51 3 U .S. :8 (1994),

an enforcement action, the Court struck down a stam tory arrangement whereby Congress put two

ex of/icfö nonvoting members on the Federal Election Commission. The Second Circuit held both

that the defendant had sunding and the action should be dismissed as violating Separation of

Powers, even though the ex t/f/Ccït? members from the Legislative Branch had no offkial powers:

Even if the ex tpy-/ic/tl members were to remain complttely silent during all deliberations(a ratber unlikely scenario)

, their mere presence as agents of Congress conveys a tacitmessage to the other comm issioners. The message may well be an entirely ap

propriateone - but it nevertheless has the potential to inlluence the other comm issioners

, . , .

(T)he mere presence of agents ûf Congress on an entity witlz executive powers offendsthe Constitution

. . . . The Commission argues that Congress intended ex oy ciomembersllip tc 11511 this coordinati

ng function by having the Secretary and the Cltrkplay a mere Rinformational

or advisory role'' in agency decisionmaking. Advice,however

, surely implies influence, and Congress must lim it the exercise of its intluence,whether in the form of advlce or not, to its legislative role

. J#., pp. 826-28.

Providirlg advice violated separation of powers. Accord, National Aot?/zzzg Contractors

' L bor 639 17 3d 339 343 (7* Cir 201 1) (G-l-he judiciary is not authorized to

Ass n v. U. S. Dept. of a , . , .

tell agencies how they must use prosecutoriai discretion when implementing valid rules

. . . .

Functional as well as formal (separation-of-powers) concerlls support leaving prosecutorial

decisions to prosecutors.''l; In re Austrian k:f' German Holocaust Lîtig

.s 250 F.3d 1 56, l 63-64 (2d

Cir. 2001 ) (çt-l-he doctrine of separation of powers prohibits the federal courts from excursions into

areas committed to the Executive Branch or the Legislative Branch.''); Unitedstates v. Jennings,

th Cir 1992) (Thejudiciary does not ç'have a license to intrude inte the960 F.2d 148:, 1491 (9 .

authority, powers and functfon of the gexecutivej branch . . . .''); In re Grandlury Subpoena Duces

Teeum, 782 F. Supp. l 5 18, l52 1 (N.D. Ala. 1992) (t*our constitmion charges to the executive

branch of governmcnt the responsibility for investigation and prosecution of crime. Judicial

5


Case 9:03-cv-8O612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 6 of 21

deference to the prosecutorial function and its attendant discretion in whos when, where

, and how

to prosecute is founded upon the constitutional separation of powers. Smith v. M eese, 821 F.2d

th cir 1987).9'). Prosecution is not an Article II1 function.

l 484, 1491 (1 1 .

B.

Receiver M arty Steinberg, appointed on the recommendation of the SEC

, DE1 0, pp.3, 24-

25; DE20, p.30, revealed earlier this year that starting no later than July l0, 2003, his actions as a

supposedly neutral officer of the Article lII court and the SEC'S prosecutorial activities as a

member of the Executive Branch coincided in a1l respects, boœsting of the existence of a

comprehensive cooperativt effort as though it was the most natural thing in the world. According

to him and the SEC, their interests are identical, so the attomey-client and work-product privileges

covered without exception every single communication between them starting before he was evcn

appointed. Receiver's Response to Ddendant Michael Lauer's Motion for an Order Allowing the

Parties to Take Discovery 6-7, DE2699, M arch 21 , 2013, Exh. B, reads:

(T1he sharing of infonnation and/or communications between the SEC and the Receiveris protccted under the common intere

st doctrine, which provides that parties withcommon business or legal inttrests can share information on those topics with

outwaiving the protection afforded by the work-product doctrine. Tbe Receiver and theSEC obviously share a common interest in discovering facts

underlyiny the#audperpetuated against the Lancer Funds and its investors

, and in presenung and collectingthe most mssets for the benefit of the innocent investors

. Thus, these types ofcommunications are protected by the work-product doceine

.z

Steinberg elaborated on his role and involvement in Court-Appointed Receiver ofLancer

Mg-/. Group v. Lauer, No. 05-civ-60584-M ARIhA, 17E762, M ay 1, 2013, pp. 22, Exh. C;

Norm ally a Receiver is appointed after the SEC has completed a substantial investigation

and obtained a judgment. Often times this occurs after the Justice Department indicts orconvicts the guilty parties. In this unusual east, however

, the Receiver was tasked with

2 (Emphasis added.) Once again, the actions of the Receiver are even worse than they seem at firstblush

. Lauer was the single largest investor in the Ftmds. Thus, the Receiver was spending

substantial nmounts of Lauer's money to help the SEC defeat Lauer while at the same time theyw

ere spending Lauer's m oney to successfully convince the district court to deny Lauer the use ofhis

œssets to defend him self. lt is positively Orwellian.



performing many of these meœsures. As a result of the Receivtr's cfforts, he and hisprofessionals wtre able to rtcover and review hundreds of thousa

nds of documents arzdbuild a central, searchable daîabmse of documents and inform

ation that facilitated actionsby the SEC, the U.S. Attonxy's Offke

, the Group investors and the Class investors. Noother party was

perform ing these crucial t%ks.

This corroborates that the SEC and DOJ sbared confidcnces with Steinberg. From the SEC

and DOJ Steinberg lenrned what thty needed to prevail against Lauer - and gave it to them. M ore

signifc> t, the govem ment '% sked'' Steinberg with specific assigmnents. çt''l'o task'' means tt'l-o

assign a task or impose a task on.'' The American Heritage Dictionary 1388 (3d ed. 1993).

Lauer sled his principal brief in the Eleventh Circuit on August 8, 2013, otl his appeal from

the District Court's orders, 17E2723, 17E2724. The next day. Steinberg filed Receiver's M otion for

Leave to Intervene in M ichael Lauer's Appeal to press his privilege argument. Ot1 September 24,

2013, Lauer tiled Defendant-AppellO t M ichael Lauer's Emergency Motion to Strike or Deny

Receiver's M otion to Intervene. On September 27

. 2013, the SEC tiled Securities and Exchange

Commission's Opposition to M otion to Strike, which explicitly embraced the Receiver's argument

that alI 4sdocuments (L-auerl sought were shielded by various privileges. DE2699 at l .'' Exh. D

(Certificate of Interested Ptrsons omitted). Thus, the SEC in a court filing confirmed its alliance

with the Receiver, which is the basis of this motion.3 The Receiver also filed an opposition to

Lauer's motion, which adopted the substance of his 17E2699 by reference. Exh. E (Certiticate of

Interestcd Persons omitted). These motions are pending in the Eleventh Circuit.

Even before Lauer had even leamed of tht charges against him, Steinberg regarded Lauer as

guilty. DE 2699. The Court was paying him with money held by the Judicial Branch to pursue

Lauer. Put simply, he unconstitm ionally acted as a prosecutor from the day he was nsmed.

Combining the judiciary with the executive ttis akin to dispensing with a jury trial because a

3 Apparently in a1l seliousness the SEC argued to the Eleventh Circuit: RFinally, Lauer states nob

asis tbr striking the Receiver'g motion. . . . Fed. R. Civ. P. 12(: (pleadings may be strlckentonlyj because of tredundant, immaterial, impertinent, or scandalous mat-terlsl*l

.'' Exh. D, p.3; butsee 13E778, DE791, DE1 812, DE1814

, DEl236, DE1913, DE 2212.



defendu t is obviously guilly.'' Melendez-Dias v. M assachusetts

, 129 S.Ct. 2527, 2536 (2009)

(scalia, J.). Moreover, the arrangement created impermissible Judicial Branch bias. See 28 U.S.C.

jj 144, 455; L itek.y v. Uniled States, 5 10 U .S. 540, 555, 564 (1994); Thomas v. Tenneco

th Cir 2002). The bias was pervasive and without b%is inPackaging Co., 293 F.3d 1306, l 329 (1 1 .

the record; in facq there was no record yet. Of course

, if the Court, ignorant of the Receiver's

partisanship alld mission, had exparte contaet with him, further inquiry would be required. 'The

government bears the burdert of showing that the defendant was not prejudiced by ex parte

conununications, and the burden is ta heavy one.''' United States v. Simms, 385 F.3d 1347, 1 352-

th j a(j()4)53 (1 1 C r. .

Steinberg's veritk ation that the SECS had not performed 6:a substantial investigation''

establishes that the total freeze of Lauer's assets was bmsed on an unsubstantial investigation and

contradicts what the SEC unqualifiedly told Judge Zloch at the TRO hearing that 1cd him to

impose an unusual total freeze of Lauer's asstts arid the appointment of a receiver

. 9E762, pp.22-

23, No. 05-civ-60584-MARRA. Exh. C. The SEC falsely stated Lauer owned an

offshore bimk

account and that m utual funds catering to tmsophisticated investors owned shares of the Ftmds

, id,

pp.8, 19-20, 25, falsehoods that Lauer consistently denied and that neither the SEC nor the

Receiver ever repeated - or corrected on the record.4 This falsehood was the primary motivation

for proceeding exparte and obtaining an ex parte TRO. SEC lawyers Zinn and M artin also boldly

asserted: ttit's clear that there have been violations of the seourities laws'' on the basis of a

seriously flawed and incomplete investigation. DE 20, pp.2; see Exh. A (Lauer Decl.) 7-8.5

4 Years later the Receiver adm itted that he spent millions of dollars searching for money oversems

that belonged to Lauer. He was tmsuccessful. Cartns Dep., Exh. F, 12/13/1 1

, pp.102-03, No. 05-civ-60854. The direct examination of Carens, Lauer's former wife, was conducted by counsel forthe Recei

ver and ends at p.8 1 , Cross-exnmination by Martin Garvey, apr/ se defendant in thatcase who

m the jury also acquitte,d in U.S. v. Lauer, begins at p.82.5 For a summary of Lauer's background in securities and managing hedge f

unds, see Lauer Decl. 1-4. How Lauer became entangled in this case is summarized at Lauer Dccl. 4-7.

8


case 9:O3-cv-8O612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 9 of 21

Steinberg participated in decisions that Separation of Powers mandates be the Executive

Branch's alone while the SEC simultaneously invaded the prerogatives of the Judicial Branch,

opemting together to oppose, inter alia, efforts by Lauer to obtain money to defend himself

, By

virtue of the joint efforts of the SEC and Receiver, Lauer Iacked the resources to hire a lawyer or

even conduct discovery. For example, Lauer wanted to take the deposition of Joseph Huard,

whose false declaration the Court tused in granting the SEC summaryjudgment. DE2133, nrl. 42,

l 33, 145., Lauer Decl. 14-1 5. W hen Huard's deposition wœs taken in December 201 1 , he was

unable to provide incrim inating evidence against Lauer. E.g.s Exh. Gs pp.73-75, 9 l -92.

By willfully violating the constitutional impemtive that the three branches of the

government exercise different powers, duties, and responsibilities (not share a Gdcommon interest''),

the SEC has acted unconstitutionally not only respecting Offshore, Omniftmd, and Partners, but

respecting Lauer and Lancer M = agem ent. No doubt now exists that their alliance included the

SEC'S covertly working with the Receiver on July 10-1 1, 2003 (if not before) to shutter Lancer

M anagement, the manager of the Funds, without having made provision for substitute professional

managem ent, leaving the Funds rudderless, powerless, and vulnerable. Lauer Decl. 10-1 1 . The

SEC and Receiver trampled on the adversary system, Separation of Powers, and Due Process.

The order appointing Steinberg, DE t8, gave him the power to settle cases on behalf of

Lancer and the Funds as part of his role as tiduciary to maxim ize the recovered assee. W hile that

arrangement is customary with a receiver, it presupposts an independent and im partiat receiver

,

not one conspiring with one of the parties. PlaintiF SEC, which seeks to punish wrongdoers, has

had every reason to m agnify the seriousness of Lauer's alleged actions. W hat better way to further

that goal than for Steinberg to sell assets or settle cases for nominal amounts? W hat could better

convince thejudge that Lauer had indeed engaged in improprieties? Any showing of

evenhandedness on the part of Steinberg would underm ine his partner, the SEC. Evidently to


Case 9:03-cv-80612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 10 Of 21

enhance the SEC'S position that Lauer was evil incarnate, Steinberg also consistently reftused to

consult with Lauer, who repeatedly complained that Steinberg was receiving inadequate amounts

when he sold Fund assets and was otherwise acting improperly. Exh. .X (Lauer Decl.) 10-1 l .

Steinberg's huge expenditures to ttrecapture'' from Lauer some low-value assets were not

cost effective, e.g., his two-year effort to recapture and sell a used GM C SUV, see DE434, DE508,

DE15l7,which was a mirror image of the SEC'S campaign to take over Lauer's mother's small

bank account. DEl 58, DE350, DE385., Lauer Decl , 1 1-12. M oreover, Steinberg instituted

unnecessarily expensive and duplicative lawsuits: Nos. 05-60584-civ-M ARRA; 04-60899-c1v-

M ARRA; 05-60 145-civ-M ARRA. He took duplicative discovery with no value other than to

harass Lauer, while inflating tht Receiver's fets. 17E426) Lauer Decl. 1 l . Al1 this coincided with

the SEC'S interests, but tlot the Funds'.

The biM ed Receiver used assets he eollected as court-appointed receiver and held for

innocent investors to pay for a variety of SEC litigation expenses, apparently including close to a

million dollars in fees and expenses of Soneet Kapita, the only witness the SEC called at the

disgorgement hearing. In view ofrecent disclosures, Kapila's testimony attains new signitk anct,

SEC lawyer M artin msked him on direct exam ination, iéAnd could you generally describe some of

the work you've been doing in this proceeding?'' Kapila answered: idYes, sure. Following the

appointment of thc Receiver, Marty Steinbcrgs we were retained and I was retained for the pumose

of some forensic work and mainly also to focus on issues for testimony pumoses and œs a

testifying expert.'' 9E2205, p.9. It is now evident that Kapila referred to Steinberg not to fix the

time he wms retained, but, rather, because there was a causal relationship between Steinberg's

appointment and Kapila's work for the SEC. (t(I was retained . . . as a testifying expert.'') The

only pending case was SE(.' v, Lauer and Kapila was paid with investor funds, not by the United

States Treasury. Lauer Decl. l 5- 16. 'Fhe SEC'S having Judicial Branch member Kapila

10


Case 9:03-cv-8O612-KAM Document 2740 Entered On FLSD Docket 10/29/2013 Page 11 of 21

responsible for presenting all o/its evidence at the disgorgemtnt heazing was legally

indistinguishable from ajudge's law clerk presenting the prosecutor's case to thejudge who hired

him.

Steinberg also prepared an elaborate electronic index of the database for his, the SEC's, and

thc DOJ's use. Exh. D, p.22. The supposedly imparlial Receiver would not givepr/ se Lauer a

free copy, as he presumably did the government, but insisted that Lauer pay tens of thousands of

dollars - which he knew Lauer did not have (he had a1l Lauer's money). DEl724, DE1748,

DE1771 , DE1865. Lauer never obtained a copy of that essential index. Lack of the key to access

the voluminous evidence led to his being held in contempt for, inter alia, violation of disccvery

orders. DE l 2 l 8; Lauer Decl. l 2-l 3. No objective observer would consider that neutral behavior.

One of the most cynical and destructive instances of the joint operation by the SEC and the

Receiver wœs the SEC'S motion for t'an order granting Ieave to the Receiver to t'i le consents to

judgments on behalf of Lancer Management, LLC, Iwancer Management Group I1, LLC

(collectively referred to as tl-ancer Management'la Lancer Offshore, Inc., Lancer Pnrfners, LP,

Omnifund, Ltdv, LSPV, lnc. and LSPV, LLC . . . .'' DEl 1 l . That was just what the SEC wanted,

so it and the biased Receiver cooperated to convince the District Court to enter by consent

permanent injunctions against innocent hedge funds with innocent directors, along with defendant

Lancer M anagement, on the SEC'S and Receiver's say so. 17E249. W hat an extraordinazy

intergovemmental branch injustice! Can the Judicial Branch and one litigant conspire to impose a

judgment on arl ilmocent litigant, in fact, someone not even a real party to the litigation?

Receiver Stelnberg pressed Lauer to settle thc case, offering to help him if he provided

evidence incrim inating others, which he told Steinberg he did not have. Lauer did not know that

Steinberg was, in effect, representing the govem ment in seeking a settlem ent from Lauer, rather

than acting as an officer of the court. Lauer Decl. l 3- 14.


Case 9:O3-cv-8O612-KAM Document 2740 Entered On FLSD Docket 10/29/2013 Page 12 Of 21

The assistance Steinberg provided the SEC hnmpered Lauer's defense and tikely influenced

the district court's rulings in this case. FEC v. NRA Political Victory FNO, supra. The recent

revelation, for example, puts in a very different light Steinberg's strenuous opposition to pro se

Lauer's motion te stay the disgorgement hearing during the pendency of the criminal case.

DE2 1 14, DE2l 19. Since Steinberg had all his assets, his goal was the partisan one of helping the

SEC by disrupting Lauer's preparation for the hearing and aiding DOJ's prosecution by forcing

Lauer to testify at the disgorgement hearing. Lauer Decl. 16. Steinberg's mssisting the DOJ

increased his stake in an SEC victory and provided the important imprimatur of the government's

judicial branch on the DOJ's attorneys' decision to prosecute Lauer. Since Lauer was acquitted of

all charges, the unlawful activities may have been instnzmental in convincing the grmzd jury to

indict him. After all, U K v. f auer was presented ïofour grand juries. See Lauer Decl. 16-17.

Steinberg acknowledged another indefensible action in his M ay 1, 2013, Response in Case

No. 05-c1v-60584 (DE762). n e DOJ and SEC relied on Steinberg in the criminal case in US. v.

Lauer et al., 08-cr,-20071, S.D. Fla. As noted above, the gmteful DOJ (and/or the SEC) Alt-asked''

him to do work for the prosecution of Lauer, Steinberg tries manfully to excuse the SEC's

, DOJ's,

and his conduct: *tNo other party was performing these crucial tasks.'' 1d. at 22. However, that

excuse does not override the Constitution. Appointed to participate im partially in a civil

proceeding, Stelnberg surreptitiously injected himself into a criminal case as an active partisan for

the prosecution. violating the Constimtion just as he did in SEC v. Lauer.

The relationship between DOJ and Steinberg was a reciprocal two-way street. Thtus, when

the FB1 arrested Lauer on the indictm enq it illegally seized his iphone. Lauer successfully moved

to suppress the iphone. DOJ's lawyer, Harold Schimkat, who had previously worked for the SEC

in SEC v. f auer before transfening to DOJ to work on the criminal cmse, teld Judge Jordnn that he

had already given the information on the iphone to the Receiver! U.% v. f auer, DE 351, DE 497

,

12



pp,7-8 & 1m.8, 1 1 . This is another example of the cozy and substantial relationship between

Steinberg and DOJ, in this insunce one that appears to have violated the law. By what authority

did the DOJ give data seized from a criminal defendant to one of the litigants in a civil case? W hat

else did Steinberg receive fiom DOJ in exchange for the services he performed for them ? W hat

role did the SEC play in the delivery of data from DOJ to Steinberg?

Judge Jordan granted the motion to suppress and ordered DOJ to retum the iphone.

Steinberg asstlred the court that he and the many others to whom he had given the illegally seized

information would not use it. 1d. Nevertheless, Steinberg proceeded to tzse the suppressed

information on Lauer's iphone at the later qucstioning of Heidi Carens, Lauer's former spouse

(and perhaps others), exhibiting a total disregard for constitutional niceties:

Q. So you understand that the receiver violated the District Court's order when theyquestioned you about the parties listed on Mr. Lauer's iphone regarding some of theinformation, correct? A. Correct.6

The SEC made the Funds relief (or nominal) defendants in this case, and arranged to have

the Receiver given exclusive control over their operation. It is undisputed that the Funds and their

directors werc innocent; they were the alleged victims of Lauer's allegedly unlawful conduct. In

fact, the Receiver completely exonerated the directors in a document he ûled on M ay l , 201 3, in

No. 05-civ-60584-M ARRA, S.D.FIa., DE762, pp.2*-29:

Jolm Bendall and Richard Geist were directors at the Offshore Funds. The Receiver

has not filed suit ajainst either of these former directors of the Funds because thvReceiver has no evldtnce that they partkipated in or had knowledge of the various

fraudulent actions committed by Lauer and Garvey as outlined in the Second Amended

Complaint. . . . grflhey were innocent directors at the Funds without complicity inLauerfs and Garvey's fraudulent actions . . . .

th Cir 199 l ) (footnote omitted), states:SEC v. Cher#i 939 F.2d 403, 414 (7 .

6 Carens Dep., Exh. F, 12/13/1 l , pp.136-40; see l 19-24.

13


case 9:03-cv-8O612-KAM Docum ent 2740 Entered on FLSD Docket 10/29/2013 Page 14 of 21

A çtnominal defendant'' is a person who can be joined to aid the recovery of reliefwithout an assertion of subject matterjurisdiction only because he has no ownershipinterest in the property which is the subject of litigation. . . , A nominal defendant

. . .has no interest in the subject matter litigated. His relationship to the suit is merelyincidental and tlit is of no moment (to him) whether one or the other side in gtheqcontroversy succeedgsl.'' Bacon v. Rives, 106 U.S. 99, 104.

SEC v. Founding Partners Capital ,l#&lJ., 639 F.S.2d l29 1, l 293 (M .D. Fla. 2009), makes

clear that relief or nom inal defendants are essentially innocent stakeholders:

A relief defendant is not accused of wrongdoing, but a federal coud may order

equiuble relief against such a person where that person (1) has received ill-gottenfunds, and (2) does not have a legitimate claim to those funds. . . . tç> lo cause ofaction is asserted against a nom inal defendant

.''

k Ranch Ac-, 276 F.3d l 87 19l (4th Cir. 2002) tno subject-matterSee CFTC v. Kimberlynn Cree , .

jurisdiction over relief defendantl; SEC v. Colello, 139 F.3d 674, 675-76 (9tb Cir. l 998) Cthe

nominal defendant . . . is not a real party in interest''); SEC v. Cavanagh, 445 F.3d 105, 109 n.7 (2d

Cir 2006); SEC v. George, 426 F.3d 786 798 (6th cir 2005).

The Com mission authorized the Funds to be sueds Exh. S, and in fact they were sued

, Exh.

1, only as lûlkelief Defendants.'' Lauer asks the Court to take judicial notice of the tmredacted Sx. S

undcr Rule 201(c)(2), FeJ.R.EV. tvack v. South Bay Stvr Distributors, 798 F.2d 1279, l 282 (9

Cir. l 986). Because they owned the relevant %sets, the Funds were not even proper relief

defendants. By definition and in actuality, the Funds did no wrong. They were alleged vîctims

.

The SEC and Receiver had no right to (mislappropriate and illegally convert the Funds and their

assets by displacing their direetors and usurping their functions, and then using their money to

prosecute Lauer. Since the Funds were beyond thcir power, the Court, the SEC, and the Receiver

violated the Due Process rights of the Funds and their directors.

The Court hms lacked Article 1I1 and subject-matterjurisdiction over the Funds because

there is no case or conloversy between the SEC and the innocent Funds. Rule 12(h),

r-ed.R.civ.proc.; Kimberlynn CreekRanch, Inc., supra; Cherif J'xprw. Any decision respecting the

14


Case 9:O3-cv-80612-KAM Document 2740 Entered On FLSD Docket 10/29/2013 Page 15 of 21

Funds is no more than an advisory opinion and void. Genesis Healthcare Corp. p. Symczyk, l 33

S.Ct. 1523 (20 l 3) (dismissal for lack of case or controversyl; Unitedpublic Workers v. Mitchell,

33Q U.S. 75, 89 (t947) Céthe federal courts established undtr Article III of the Constitution do not

render advisory opinions''). If the CEO of a big bank committed an alleged major fraud on the

bnnk, could a district judge on the basis of an exparte hearing dismiss the ballk's directors and

appoint a receiver with absolute power to operate the bank? W ouldn't that be a classlc violation of

the Fifth Amendment's Due Process Clause, among other Shings? The Court has had no more

power over the operation of the British Virgin lsland Funds than it would have over a person in

China or India who was not named as a defendant in a case.

The Funds should have been dismissed either sua sponte or by motion of the SEC or

Receiver some time during the nearly six years of litigation in the district court. See Rule 12(h),

Fed.R.civ.proc. (dismissal mandatory ttat any time'' when no subg'ect-matterjurisdictionl',

Hollingsworth v. Perry l33 S.Ct. 2652 (20 l 3) (dismissal for lack of subject-matterjulisdiction);

Arbaugh v. F tfr H Corp., 546 U.S. 500 (2006) (same). Because no catlse of action has been or

could be asserted agninst the Funds, the Court's very appointment of Steinberg as Receiver of the

Funds at the instance of the SEC violated Due Process and is void nuncpro tunc.

D,

While there is no requirement that an individual show injury by the violation of separation

of powers or absence of subject-matter jurisdiction, see, e.g.s Young v. Unftedstates, supra; FEC

v. NRA Political Victory Fund, supra, the distortion of the Constimtion prejudiced Lauer. The

SEC beneGted from Steinbtrg contribution. The over $60 million in fees and expenses Steinberg

recekvedh'om the Funds (with the SEC'S endorsement) added enonnous resources to the SEC'S

effort. Proceeding pro se without any other assistance, Lauer suffered the further disadvantages of

battlin.g the SEC and Receiver working together. Lauer Decl. 1 1, 17. Does anyone belitve that a


Case 9:03-cv-8O612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 16 of 21

prosecutor can obtzin contributions, much less Judicial Branch contributions, to prosecute a

particular case? Isn't funding prosecutions a funetion of Congress lmder Article 12 Can a member

of the Judicial Branch take assets in viotation of Due Process and use tlw m to ftmd the Executive

Bratlch? Isn't subject-matter jurisdiction mandatory? The constitutional violations are endless,

Rt-l-he structural principles secured by the separation of powers protect the individual . . . .'''

Stern v. Marshall, 131 S.Ct. 2594, 2605 (201 1) tRoberts, C.J,), quoting Bond v. United States, l 3 1

S,Ct. 2355, 2365 (201 1), which also said, Slindividuals çare protected by the operation of sepnration

of powers and checks and balances and they are not disabled from relying on those principles in

otherwise justiciable cases and controversies.''' Young, Stern, Bond, and FEC v. NRA Political

P'fc//r.p Fund establish the standing of Lauer to vacate the judgment and dismiss the complaint.

Indeed, it is difficult to imagine anybody whose claim to standing would be skonger than the

defendant in an unconstitutionally instituted and conducted federal enforcement proceeding and

any relief more appropriate than dismissal of the case. It is likewise diftk ult to imagine a remedy

other than dismissal. Young. Jl/prlz' FEC v. JVA,'I Political Victory Funds supra.

By having willfully co-opted the Receiver for a decade of litigation, the SEC'S entire effort

in SEC v. Lauer has been cornzpted. How can the SEC claim it legally obtained ajudgment

against Lauer when ajudicial official appointed in this very case comprehensively immersed

himself in its partisan efrort? The SEC'S use of Steinberg's resources and status distorted the

entire proceeding against Lauer, making unsustainable both the finding of liability, DE2133, and

the finding ofover $40 million as the nmotmt to be disgorged. DE2260. Also, the alliance

between the SEC and Steinberg cotzld not help but influence the District Court that appointed

Steinberg expecting him to be impartial. E.g., DEl l 1, DE207, DE37l, 17E426, DE500, DE808.

Acknowledging that the SEC and Receiver were acting as partners from the inception of the

case establishes that plaintiff SEC was directly involved in the Receiver's closing down Lancer

16



and the Funds. Indeed, the Receiver specitically claimed that his comm unications with the SEC

leading up to the shuttering of Lancer on July 1 1 , 2003, were part of ajoint operation with the SEC

and privileged. Compare DE 2679, p.2, with 17E2699, pp.6-7; see Lauer Decl. 9-10. Theirjoint

action in shuttering Lancer based on an px parte hearing violated Lauer's and Lancer's Due

Process rights, voiding the judgment. United States v. James Daniel Good Real Property, 5l0

U.S. 43, 48, 55-56 (1993) ($çOur precedents establish the general rule that individuals must receive

notice and an opportunity to be heard befbre the Government deprives them of property.''); accord,

.#-&:nJE',& v. Shevin, 407 U,S. 67, 81 (1972)) Goldberg v. Kelly, 397 U.S. 254 (1970).

Rule 60(d)(3) was violattd not only because SEC artd Rectiver attorneys were involved, but

also because the SEC falsely represented to the Court on July 1 0, 2003 that the status quo would

be maintained. The motion and order appointing Steinberg ms Receiver, drafted and submitted by

the SEC, stated the status quo would be maintained. DE l 0, p.2; DE 18, p.3. M oreover, the SEC

so falsely represented orally at the exparte TRO hearing: AtTHE COURT! Aren't the Funds going

to be shut dow'n? M S. Z1N N: W ell, no, Yottr Honon'' DE 20, p.l8; see Lauer Decl. 9.

The claim s presented by this motion are fundamental to the nature of the federal government

and to the integrity and operation of the federal courts. The SEC, DOJ, and Receiver violated the

Due Process Clause of the Fifth Amendment, Separation of Powers, and committed a fraud on the

court. The judgment should be vacated under Rules l 2(h), 60(b)(4) or 60(b)(6), and 60(d)(3),

Fed.R.Civ.Proc., or for prosecutorial misconduct, and the complaint dism issed.

E.

As collateral damage, each member of the unlawful ad hoc alliance waived its or his

respective privileges by disclosing its or his purportedly privileged material to the other. Nothing

of theirs is protected by the attom ey-client or work-product privileges.

in University ofpennaylvania v. EEOC, 493 U.S. 1 82, 1 89 (1990):

The Supreme Court stated



Inasmuch as S'ltqestimonial exclusionary rules and privileges contmvene the fundamentalprinciple that çthe public . . . has a right to everyman's evidence,''' g'Frammel v. UnitedStates, 445 U.S. 40, 50 (l980)q, quoting United States v. Bryan, 339 U.S. 33 1 (1 950), anyprivilege must be Atstrictly construed.'' 445 U.S. at 50.

The SEC and Receiver each engaged in a classic waiver by revealing material to a third

party not part of a bona fide attom ey-client or pooled relationship. ç%-f'he attom ey-client privilege

is waived by the client's voluntary disclosure or consent to disclosure of any significant part of the

privileged communication or matter in a nonprivileged setting.'' Christopher B. M ueller & Laird

C. Fitzpatrick, Evidenee j 5.28, p.392 (5th ed. 20 12). Common interest is not a separate privilege;

rather, it is an exception to the waiver principle. In re Pacsc Pictures Corp-, 679 F.3d 1 121, 1 129

th Cir 2012); In re Grandlury Subpoenas, 902 F.2d 244, 248-49 (4tb Cir. 1990). tt-f'he burden is(9 .

on the party claim ing the privilege to establish that the communication was made in pursuance of a

common interest.'' Mueller & Fitzpatrick j 5.15, p.345. The assertion by the Receiver alld SEC of

an all-encompassing privilege for all their commtmications requires that their legal interests be

identical since they exclude no aspect of their activities from the asserted privilege. Strougo v.

BEA Associates, 199 F.R.D. 515, 520 (S.D.N.Y. 2001), stated:

The weight of authority suggests that the çlcommon interest rule'' can apply where parties

are represented by separate counsel that engage in a common legal enterprise. . . . This

version of the ççcommon interest'' doctrine has been described as follows:

A com munity of interest exists among different persons or separate com orations

where they have an identical legal interest. . . . The key consideration is that thenature of the interest be identical, not sim ilar, and be Iegal, not solely commercial.

See, e.g., Fireman 's Fund Ins. Co. v. GreatAmerican lns. Cb., 284 F.R.D. 132, 139-4 1 (S.D.N.Y.

20 12)., f etzler Technologîes, Inc. v. Facebook' lnc., 719 F.S.2d 373, 376-77 (17. Del. 20l 0).,

Applying these principles, a circuit court held there was an insufficient commonality of

interests to justify a joint-defense or common-interest privilege for discussions between Hillary

Clinton and her private laNvyers in the presence of W hite House cotmsel, a particularly relevant

precedent in view of the sim itar instimtional considerations involved. ln re Grandlury Subpoena

18


case 9:O3-cv-8O612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 19 Of 21

1 12 F 3d 910 922 (Sth Cir l 997). The prosecutorial interests of the Office ofDuces Tecum, . , .

independent Counsel and the institutional interests of the W hite Hotuse were not the snme, even

though both were members of the Executive Branch and b0th were conducting or assisting

overlapping investigations. The Court concluded:

W e have no doubt that the W hite House and M rs. Clinton are conctmed withunderstanding fully the facts involved in the OIC's investigation, nor that dividingresponsibility between the personal attomeys and W hite House counsel can be a

diffkult task. . . . But these justifications amount to no more than an assertion thatVçwe all want to obey the law.'' W e do not believe the com mon-interest doctrine

stretches that far.

Another held that the victim of crim e tthas no more of a common interest with the govemment thnn

does any individual who wishes to see the law upheld.'' In re Pacsc Pictures Corp.s 679 F.3d as

r ited States M. Aramony, 88 F.3d l 369 1392 (4tb cir. I 996) (company and its head lackl 129; see Ln ,

i terest); United States v. Suarez, 820 F.2d 1 l 58, 1 159-60 (1 1th Cir. 1987) (privileges areCommon n

not favored and should be constnzed narrowly); In re Grandlury Subpoena, 831 F.2d 225, 227 (5th

Cir. 1987) (burden of proof on person asserting privilege); ln re Bevill, Bresler & Schulman Asset

Mgmt. Corp., 805 F.2d 120, 126 (3d Cir. 1986) (snme); f edbetter v. Farmers Bank (f Trust Co.,

A'p.fllrl; Henderson v. Holida.y CPX LL C, 269 F.R.D. 682, 687-88 (S.D.FI. 2010).

The SEC'S and Receiver's unsuccessful efforts to prove their respective legal interests were

identical in order to claim evidentiary privileges have established their violations of Separation of

Powers and Due Process, which require vacating the judgment and dismissing the complaint.

111-

If the Court is not prepared on the present record to grant Lauer the relief he seeks in any

particular respect, Lauer requests that the Court ailow him relevant discovery wit,h respect to the

SEc-Dol-Receiverjoint operation, including taking depûsitions of the Receiver and the SEC,

their lawyers, and others who may have knowledge of facts relevant to the extent and nature of the

SEc-Receiverjointly conducted effort against Lauer, and to secure relevant documentm'y

19


Case 9:O3-cv-80612-KAM Document 2740 Entered on FLSD Docket 10/29/2013 Page 20 Of 21

evidence, including emails and memoranda sent by and to the Receivers the SEC and the DOJ, and

any written agreements to which the Receiver is a party relating to their common effort mounted

against Lauer. All privileges have been waived. Lauer also seeks discovery, initially from the

Receiver, on exparte contacts with the district judges. Lauer defers his request for discovery from

DOJ, except for documents relating to the search and stizure from Lauer at the time of his anrst

and to other com munications between the DOJ and Receiver. ln any event Lauer requests an

evidentiary hearing at which he can subpoena and present evidence in the form of testimony and

documents, along with argument.

Lauer also moves the Court to promptly enter an order directing the SEC and Receiver to

preserve al( docum ents relating to Lauer, Lancer M anagement, or the Funds, including, but not

limited to (1) all communications, including emails and memoranda, between the SEC and tht

Receiver; (2) all of tht SEC'S internal emails and memoranda; (3) al1 of the Receiver's intemal

emails and memoranda; (4) and, in cormection with Unitedstates v, f auer. No. 08-Cr.-2007 1, S.D.

Fla., al1 emails and memoranda between the Receiver and the DOJ relating to the indictment,

prosecution, and activities of Lauer, Lancer M anagem ent, or the Funds.

W HEREFORE, the Court mtlst vacate the judgment and dismiss the complaint pursuant to

Rules l2(h), 60(b)(4), 60(b)(6), and 60(d)(3), Fed.R,civ.proc.

ectfully subm it ,*

David M , Dorsen

Suite 500

2900 K Street, N.W .

W ashington, DC 20007Tetephone: 202 204-3706

E-Mail: [email protected] for M ichael Lauer

Dated: October 25s 20l 3

20



INDEX TO EXHIBITS

Declaration of M ichael Lauer

Receiver's Response to Defendant M ichael Lauer's M otion for an Order Allowing

the Parties to Take Discovery Solely Relating to Defendant's M otion to Vacate the

Judgment, and M emorandum of Law, 3/21/13, SEC v. L auer, Case No. 03-civ-

80612-M ARRA 23

22

B .

Receiver's Response in Opposition to M artin Oarvey's M otion for Summ ary

Judgment, 5/1/13, Court-Appointed Receiver p. L auer, Case No. 05-civ-

60584-51AR.1G

Securities and Exchange Cornm'n Opposltion to M otion to Strike, 9/27/1 3, SEC v.th cir 25f auer

, No. 13-13 l IO-EE, 1 1 .

24

Receiver's Response to Defendant-Appellant Michael Lauer's Emergertcy M otion

To Strike or Deny Receiver's M otion for Leave to Intervene, l 0/1/1 3, id.

Deposition of Heidi Carens, 12/13/1 1, Court-Appointed Receiver v. f auer, Cmse

Nô. 05-civ-60584-M ARRA

Deposition of Joseph Huard, 12/12/1 1, id.

SEC Authorization Fonn in SEC v. Lauer et al., supra.

Complaint in SEC v. f auer, suprq.

28

H.

30


Exhibit 2

15


Case 9:O3-cv-8O612-KAM Document 2740-2 Entered On FLSD Docket 10/29/2013 Page 2 of1OO

DECLAR ATION O F M ICHAEL LAUER

Pursuant to 28 U.S.C. j 1746, the undersigned states as follows:

M y nnme is M ichael Lauer. I am over 2 1 years of age and l have personal

knowledge of the matters set forth herein. I am the defendant in an SEC case (Case No: 03-

80612) brought against me in July of 2003, and l submit this Declaration in support of the

M otion to Vacate the Judgment and Dismiss the Complaint.

2. I came to the United States from Poland witb my mother in 1970 at the age of

1 5. l spoke no English. l worked my way through college doing a variety of jobs. I've had no

legal education, training, or experience.

3. ln 1980, at the age of 25, I began m y investment industry career as a secudties

analyst. During the subsequent 1 3 years I was employed by some of the most highly regarded

investment bnnking finns. W hile I worked in the investment bariking community, I had an

impeccable record of professionalism, and at no time were there any regulatory or legal issues,

even alleged against me.

1 enjoyed a very successful l3-year-career on Wall Street, as partly evidenced

by the perennial Institutional lnvestor M agr ine's %*All American'' analyst survey ranking, as

well as personal accumulation of substantial wealth. In early 1993, l decided to start a hedge

fund. In 1995, l also launched an offshore hedge fund, and by 2003, the vast majority of the

hedge funds' assets (over 80,4) were concentrated in the multiple offshore investment vehicles,

which were domiciled abroad, and catered almost exclusively to foreign investors. The funds

had come to be known as the ûûl-ancer'' group of funds (hereafter referred to as the ttFunds').

The pritnary objective of the Funds wms to manage my personal capital, nearly

all of which was invested in the Funds, in the most optimal mnnner possible, so as to meet my

investment goal of maximum capital appreciation. The Funds were also selectively opened to

certain financially sophisticated and iiaccredited'' investorso who shared my underlying

investment objectives. The minimum investment in the Funds was $1 million, and by

approximately 2000/2001 . the average invested client account had a value of appfoximately $5

million. Prior to investing in the Fundss al1 investors were encouraged to conduct extensive

due diligence, which included open interaction with the Ftmds' independent administrators,

auditors and directors. among others.

6. By virtue of the appreciation of my original invested capital in the Funds, as

well as my defening coltection of the vast majority of the incentive fees earned from the


Case 9:O3-cv-8O612-KAM Document 2740-2 Entered on FLSD Docket 10/29/2013 Page 3 of

10O

Ftmds' historical superior performance, I remained by far the largest individual investor in the

Funds, with nearly a11 my liquid net worth co-invested, directly or indirectly, with the Funds'

investors. Even my IRA was invested in the Funds.

The Funds' strategies were executed by the lnvestment M anagement

(lnvestment Manager) company - Lancer Management Group (hereafter referred to as:

(tLMG'') - which by 1997 included three members, namely: myseif, Martin Garvey and Eric

Hauser. All three of the LM G members were exceptionally well credentialed and highly

experienced, with master's degree level education (for two out of three), and, on average

approximately 20 years of investment business experience (by 2003).

8. During the approximately 60 years of cumulative investment industry

experience, the LM G members had an unbiemished reguiatory record, as did all other of the

Funds' employees. (kLlhere have never been any administrative, civil or criminal actions,

whether pending, on appeal or concluded, against the Funds, the lnvestment M anager or A;r

f auer '' - PPM - TRO ex 5 p. 1)

Al1 the pubiic securities transactions for the Funds were executed by

independent third party brokers and market makers, over which neither the Funds nor LM G

had control. These third party broker-dealers and market makers had a legal and regulatory

duty to provide the Funds with the Sçbest execution'' prices on the underlying trades. Even

though al1 of the transaction-executing brokers were registered with the SEC, at no time did the

SEC allege that the brokers had failed to fulûll their itbest execution'' duties in connection to

the Lancer Funds' securities transactions, and none were charged by the SEC with any

wrongdoing in regard to Lancer matters.

10. The Funds had always hired the highest quality service providers to support

and audit the Funds' operations, inducting the Funds' auditors (Pricewaterhousecoopers) and

the Funds' administrators (Citco and IFS). All of the Pricewaterhousecoopers audits had

S6unqualified'' opinions, and there were never any auditor citations in regard to any

tçdejiciencies'' by the Funds, LM G or its administrators. To this day, the Funds' auditors had

not amended or rescinded their historical Funds' NAV calculations and audit certitlcations.

The Funds' independent directors were responsible for the Funds' operations,

including the Funds' final NAV valuations, as well as the selection of the Funds' service

providers, including the auditors, the administrators and the investment manager. (''The

management ofthe Fund's operations f.î and will be vested d'o/czy in the Board ofDirectors,


Case 9:O3-cv-8O612-KAM Document 2740-2 Entered on FLSD Docket 10/29/2013 Page 4 of1OO

...,

'' - (DE l 923 p.6; TRO ex. 4 p.1 l ). Further, the PPM states: '' The Directors Zatzy? appoint

anyperson or persons as manager ofthe Company ... ''XRO ex. 6 at 1 7.3,). The Directors also

had absolute discretion over the Funds' NAV calculation '' ....ijtirectors may in their absolute

discretion, permit some other method ofvaluation to be IZA'EJ Ifthey consider that such

valuation better ra-/zcca thefair value '' .-gDE 1823 p.7; TRO ex. 6 p. 1 5). Also, ê'...the Board

ofDirectors in conjunction with the investment manager estimated thefair values ofsuch

securities based on methodolop developed by the investment manager gDE 1923 p.7).

l 2. Neither I nor any other member of the LM G was ever a Director of any of the

Funds. The nnmes of the Funds' independent directors were ljsted in the Funds' PPM 'S and

audits. Also significantly, no director of the Funds was ever charged by the SEC with any

m ongdoing.

13. In the 10 years following the launch of the Funds, through the end of 2002.

the Funds' benefited significantly from the generally well executed LM G'S versatile investment

strategies, as well as the mostly accommodating global equity securities markets. By the early

2000's, the Funds' aggregate assets topped $ 1 billion, even after retuming to investors

approximately $600 million. since the Funds' inceptiony as reflected in tlnancial statements

audited, by nmong others, Pricewaterhousecoopers. In other words, during 1he life of the

Funds the investors were m aking substantial profits.

Approaching the tenth anniversary of the Funds existence, in the latler part of

2002, there were no allegations of any Nvrongdoing by any of the regulatory or law

enforcement authorities against the Funds, or any of its employees. Indeed, in the thousands of

securities transactions engaged in by the Funds over the preceding decade, I was never

informed by any regulatory authority, or any of the Funds' service providers or coanter-parties

of any, even potential impropriety, by either the Fundss or any of the LM G members or

employees.

The Funds' portfolio valuation records from the Funds' prime broker, Bank of

America, reveal that the collective values of the Funds, including the Special Purpose Vehicles,

on the day the Receiver took over Lancer was approximately $ 1 billion. Consequently, these

mid-month stock market values for the underlying portfolio holdings, which manifestly were

not innuenced by any trading by the Funds, plainly represented natural m arket interplay of

supply and demand for the underlying shares. and thus were properly priced, and in accordance

with the Funds' pricing policies.



Even though the Funds and the LM G had an impeccable reputation and there

was no probable cause to believe that either 1 or any other LM G member would be predisposed

to wrongdoing, of any kind, in Juiy of 200 1 , 1 and the Funds became a target of a sectmities

fraud sting operation code-named içBenzluda Short.'' The sting operation had origlnated and

was conducted by an over-reaching M iami based DOJ/FBI team, in cooperation with a couple

of whitt-collar felons, m otivated by a promise of sentencing leniency for their earlier

convictions. I had no prior contact with, or knowledge of the felons, nor did anyone else at

Lancer.

17. On or about July 1 4, 200 1 an undercover M iami-based FBI agent, teamed

with the felons (hereafter referred to as the govemment's ûûentrapment tenm'') insinuated

themselves into the LM G'S offices in New York City, ostensibly with an offer of a legitimate

co-investment in one of the Funds' portfolio holdings (there was no allegation that there was

anything improper with the Funds' portfolio holding itselt). ln fact, the entrapment team's true

objective was to ensnare me into some incriminating eonduct, have it recorded on wiretaps,

and then indict me along with the other Bermuda Short seemingly random targets. M y

participation in the meeting was brief, and, as was characteristic of my historical conduct, I

refused to participate in any transaction that would appear to be even remotely improper.

1 8. The excemt from a transcripts below, is the exonerating testim ony of the FB1

agent - M ichael Palusak - of the government's entrapment team, who attempted to ensnare me

into some securities-related wrongdoing while at LM G'S offices in July of 2001 . The FBI

agent's testimony took place during the James Kelly vJ. United States trial on November 9,

2004, pp. 17-1 8, questioning by Norman M oscowitz. M r. Kelly's attom ey. M r. Kelly was

acquitted.

Q.. Now, what Mr L auer is saying to you, that the price is gtlfrlg to betkere is demand there -- the price is going to be determined by the mtzrkef. Right?

A: Supply and demand

;.' That's the market?ad,' That's correct.Q.' He /.ç saying ''L et it go, '' meaning the price will go wherever the market sends it.

Right?A. That's the w/-p I understood it, yes.:. He is saying there J2c is not agreeing to control the price ofthe stock with them, ishe? lsn't that what he is saying?

a4. That's correct. That's what he is saying.

-- he believes

During (he criminal proceeding against me and the other two LM G members


Case 9:03-cv-8O612-KAM Document 2740-2 Entered On FLSD Docket 10/29/2013 Page 6 of1O0

in 2008, an FB1 case agent testitsed that the government's entrapment team had attempted to

ensnare me into some govemm ent-manufactured wrongdoing on multiple occasions, but failed.

As a result, the govenzment did not introduce any of the entrapment team 's wiretap recordings

(the FBl agent represented that the govermnent had six such recordings) at criminal trial as

evidence, because neither 1, nor any other Lancer employee, ever agreed to participate in any

of the government fabricated malfeasance.

20. On August l 2, 2002, the M iami based DOJ office unsealed its Bermuda Short

sting operation list of ensnared targets, totaling over sfty individuals. Neither I nor any of the

LM G members, nor any of the Funds ' employees were named in the indictment.

21 . On about M arch 14, 2003, I received a letter from the M iami branch of the

SECS which, in sum and substance. requested my voluntary cooperation with the SEC'S

ttinformal'' and t'confidential'' investigation. lt was apparent from the request that the SEC

had no substantive knowledge of, or any information on the private Lancer and the offshore

Funds, as its inquiries focused on the most basic information requests, including for the Funds'

PPM 'S and historical audits. I was puzzled as to why the SEC, particularly the SEC'S M inmi

branch would have interest in the Lanccr Funds, given that the Funds were not under the SEC'S

jurisdiction, and that neither the Funds nOr LMG had any operations or presence in Florida, but

1 requested that the LMG'S legal counsel - Gerald Labush - handle the matter.

22. Although I was infonned by Mr. Labush, that the SEC had no jurisdiction

over the non-regulated, and the mostly offshore Funds, and that the SEC had no subpoena

power to oblain any information from the Funds at that stage (given the then t4informal'' nature

of the investigation), 1. in good faith. and believing that the Funds' had nothing to hide.

instructed M r. Labusln to provide the SEC with any and all inform ation the SEC wished to

have. During the 12/6/05 court hearing, M r. Labush testitied that:

,4 .' (Labush) 1/r: Busto ((fSEC) had inued a requestfor documentsjkom the Lancergroup, and 1 wtu l'nvolved in producing, at M t Lauer :ç direction, the documents that

were requested over a period oftime. Q.' l'fz-er: those responses done voluntarily orpursuant to a subpoena at that time? A.. They were voluntary at that time. gDE l 198

p.38-391.

23 Before Mr. Labush commenced delivery of the SEC requesttd infonuation,

Mr. Labush sought and obtained an assurance from the SEC that the information would be in

fact kept confdential, as the SEC represented in its written request, and that no third party,

including the DOJ, would be provided with any of the voluntarily-provided Funds' documents.

5


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24. ln early June of 2003, Mr. Labush no longer felt comfortable with his

voluntary accomm odation of the SEC'S requests for information, in large part because of the

open-ended and the unfocused nature of the information requests. ln sum and substance, the

SEC appeared to be on a e%fishing expedition.'' Therefore, M r. Labush asked the SBC to obtain

a ''fonnal'' order of investigation, which, in addition to requiring the SEC Commissioners'

authorization, would more specifically define the scope of the SEC'S interests. That would

perm it us to address any SEC issues more specifically. Also, if, after investigation, SEC had

considered an enforcem ent action, the Comm ission would provide us with a document calted a

'tW ells Notice.'' This document would palicularize SEC'S reasons for considering filing a

complaint and, it would give us an opportunity to respond to Commission's concerns.

25. To the best of my knowledge, the Commission had not issued a çtformal''

order of investigation, until a few days before the Receiver shut down the entire Lancer

organization. The SEC also never issued the customary W ells Notice, which would have given

us an opportunity to address any concernss before Receiver terminated the Funds.

26 . On June 12, 2003, a Miami based FBI team executed a search warrant of the

LM G'S om ces in New York and Coanecticut. It was clear from the text of the search warrant

application obtained by FBI, which was made available for my review, that FB1 relied alm ost

exclusively on the Funds' and LM G'S documents that were voluntarily provided to the SEC by

counse! Labush. ln fact, during an evidentiary hearing in connection with the crim inal

proceeding against me, discussed below, the then head of the SEC'S Minmi branch's

enforcem ent division - Jolm M attimore - confirmed that the M iam i based SEC provided

confidential information to his colleagues at the M inmi based DOJ branch:

27 . During a pretrial hearing in the criminal case brought against m e, M r. M attimore

was questioned by Blian Stekloff, the Federal Public Defender attorney for me in the criminal

proceeding (pp.327-28):

Q: And they (DOJ) werd looking into many issues, not involving Lancez arising out ofthis Bermuda Short investigation.

A. Correct.Q. And isn 't it Irue that they came to you, and that f.î what led to the SEC looking into aNew York-based ct??Awll7-p?

.,4. Uhm, they did come to us, and 1 believe it wtu in regard to L Jncc?i or some issues

related to L ancez and #7tz/ well could sc lr&e.

Q. Wken -- l assumt aheryou initiatêdyou invesligation, that you continued Jo havecontact with the DOJ attorneys correct?

.4. 1H .


Case 9:O3-cv-80612-KAM Document 2740-2 Entered on FLSD Docket 10/29/2013 Page 8 of1O0

Q. And 1 assume you J/l'() shared irformation with them?.d. lH .

28 Also, during the trial of Larry Isaacson, a codefendant of m ine, whose trial

was severed from mine, M r. M attimore confinned in his reference to the SEC'S investigation,

that the M iami branch of the SEC had been enlisted by, and worked as a discovery engine for

the DOJ 1.4310): ''the Department oflustice came to us and requested a.î.s.g/tmcc.is

29 Given the above incontestable information from the senior M inmi branch SEC

enforcement ofticer, there can be no question that the Miami branch of the SEC had willfully

lied to M r. Labush - the LM G'S legal counsel - regarding the pumose of the SEC'S inquiry into

Lancer in the first halfof 2003, in order to obtain our voluntary cooperation. Since the SEC

had no subpoena power at that stage, it therefore could not have compelled cooperation, and

thus it opted to resort to fraud, to obtain information for the M iami DOJ om ce. W ithout the

information voluntarily provided to the M iami SEC'S branch, the M iami DOJ/FBI team would

not have been able to craft its search warrant against the LM G or the Funds.

30 Revealingly, neither the LM G members nor the Funds were ever charged with

any wrongdoing by any of the New York-based federal or state law-enforcement authorities.

3 1 Neither the Funds nor LM G had any m aterial contacts with Florida, a finding

eventually conûnued by the district court: (''there is Iittle to connect this case to South

Florida '' and the defendants had: çiminimal contact to this district g DE 491 p.4).) That meant,

inter alia, that Florida was essentially a foreign piace where I knew no one and could not

expect help from anyone. M oreover, it would be expensive for me to travel to Floridas

particularly given the court imposed asset freeze. .

32 W ithout presenting the Funds or LM G with a formal order of investigation, or

issuing a W ells Notice, the SEC filed a complaint against me, LM G and the Funds, on July 8,

2003.

On July 10s 2003. an ex parte court heming wms held in a Fort Lauderdale

federal courtroom. N either l nor anyone l know of connected with LM G or the Funds was

given notice of the hearing. The brief transcript of the proceeding suggests that the substantive

part of the hearing tasted no more than perhaps twenty minutes. DE 20.

34 The transcript also revealed that the SEC had willfully m isled the presiding

district judge onjust about every issue of substance it raised with the court, including my and

the Funds' legal and regulatory record, the nature of investors in the funds, and the origins of


Case 9:O3-cv-80612-KAM Document 2740-2 Entered on FLSD Docket 10/29/2013 Page 9 of1O0

its investigation. The M iami SEC cokmsel also withheld from the district court the fact that it

was recruited by, and was improperly working on the behalf of the M iami DOJ oë ce. In fact,

it appears from the subsequently obtained documents, that one of the M lami SEC attomeys

assigned to this case - Harold E. Schimkat - also, at the same time, was employed by the DOJ.

Even though Schimkat was privy to information that we infonnally provided to the SEC solely

for its own investigation, he became the lead prosecutor of the criminal ease against me.

35 One of the most egregious falsehoods presented to the distlict judge during the

July 10, 2003 TRO hearing, with which the SEC'S had justified its exparte request for a total

freeze of a1i my assets and the appointment of a receiver for Lancer M anagement and the

Funds, was supposedly my wiring assets abroad, as depicted during the hearing by the SEC'S

Exhibit 48, TRO transcript, DE 20, p.8:

Moreoveö L auer has at least one personal account tpf/-ltpr: that we 'rc aware of whichf.9 setforth in Exkibit 48. And interestingly, Fbvr Honoz one thing I wanted to point outabout Exhibit 48, which shows rrc/t-ç-/èr.ç by Mr L auer tp-#à/ltprc (sic-l, there # one ofthelzwzs-/idnî isfor one point three million dollars, and it occurred on Marck 31st.

36 The SEC knew, or should have known, that this was an utterly false

representation that was being made to a districtjudge, on a matter of great importance. The

SEC, had known, or should have known that the bank account cited in the itexhibit 48'5 did not

belong to me, but rather was used by the Funds to finance its routine operations by LM G.

Therefore, it is clear that by misleading the district court regarding the Stexhibit 48,9: the M iami

SEC was able to fabricate a bogus excuse for the tçemergency,'' ex parte TRO hearing, pursuant

to which the Funds and the LM G had efectively ceased to exist. The SEC made other false

statements that it knew, or should have known, were utterly false. including that the Funds'

shares were sold to m utual funds and that unsophisticated investors owned shares in the Funds.

The SEC also willfully misrepresented to the district court the merits and the

strength of its case against me during the TRO. W hile the court assumed from the SEC'S

representations that it had an open-and-shut case against me ( ''... should have minimal impact

on the SEC rç ability to prove its claims which, presumably, it wtu prepared to do when itsled

this case... '' gDE 121 8 p.1 7-1 8!); in fact, the SEC had no materia! evidence of wrongdoing

during the TRO proceedings. This is partly evidenced by the SEC'S opposition to my requests

for an early trial on merits, and then the SEC'S own motions for continuance of trial, a delay

that I vigorously opposed. Even more revealing of the fact that the SEC was not anywhere

8


Case 9:O3-cv-80612-KAM Docum ent 2740-2 Entered on FLSD Docket 10/29/2013 Page 10 of100

close to being ready to go to tria! when it filed its Funds' terminating complaint, is the SEC'S

own eventual concession in its documents that disclosed that! ''The SEC !s- evidence ofthese

matters wtu primarily developed during these depositions, '' DE 1852, at p.10. Of course, the

depositions in this case did not begin until more than a year after the SEC filed its complaint,

which caused the Funds to be shuttered.

38 On July 10, 2003, the district coul't granted the SEC'S application for a

Temporary Restraining Order, including a request to appoint a receiver over the Funds.

39 The transcript ofthe TRO hearing reveals that the SEC had expressly

represented to the presidingjudge (THE COURT. Aren / the Funds going to be shut down? ''

kDE 1198 p.1 81), in response to his question, that the Receiver would, among other things, not

shut down the Funds, and would, as also per the eventual receivership order, maintain the

status quo in operation of thc Funds, subject to further order of the Court. This SEC

representation to the districtjudge, at a time it was working closely with the Receiver, wms also

fraudulent.

40 ln fact, immediately aher the SEC selected M iami-based Receiver arrived at

the Lancer offices in New York City and Stamford. Cormecticut, on July 1 1, 2003. The

Receiver, who claimed to me and counsel Labush to have the districtjudge's authority, ejected

al1 Lancer professionals and other employees from the LM G'S oftk es, and terminated thtir

employment. The Receiver also terminated the Funds' directors, who were responsible under a

statute for the management of the Funds, and who were not charged with any wrongdoing.

41 Consequently, pursuant solely to the TRO ex parte hearing's receivership order,

before the District Court had an opportunity to hear my answer to the complaint and the rebuttal

to the allegations, and bqfore any of the Funds' Directors or investors were made aware of the

SEC'S ex parte action, the then ten-year-old Lancer organization had ceased to exist. As stated

by the Lancer's attorney M r. Labush during the December 5, 2005 court hearing:

''1 learned about the hling ofthe SEC case when I wld present in the Lancer o-#lcc.ç on 1J/ d d July /JJ' I wtu' in the con#rence room when anotherthink it wtzç July 12 , an aroun .

raiding party arrived. T/c/:' one, it lurned oul, wto' retained on behalfofthe receivet '' . . .''And they by the end q/- the day /Jl0, took ?zJ out and had /tzktdn physical possession t?/-

the o' cc, changed the lock. '' (DE l l 98 P. 49)

42 The Receiver provided no severance pay or arty other tenuination beneGts to

the fired Lancer employees. 'T'he SEc-selected Receiver's treatment of the Lancer's employees

was particularly unconscionablez as none of the employees were charged by the SEC (except



myself), or by any other authoritys with any wrongdoing, and al1 employees had impeccable

professional credentials and regulatory histories.

43 Even more inexplicably, the Receiver also t'ired the Funds' independent

directors, even though none of them were charged with any wrongdoing by SEC, or anyone

else. The Receiver exonerated the Directors, who were highly experienced and exceptionally

well qualified. The Funds having been denied their services by the Receiver. have suFered

greatly by Receiver's actions. As a result, the Funds were effectively shut down and destroyed.

They were left without any management. Given the importance of day-to-day, in fact, minute-

by- minute attention to the assets of the Funds, including evaluating breaking news, no hedge

fund left without competent m anagement can survive. To the best of my knowledge the

Receiver and his assistants refused to consult with the discharged directors or with other

Lancer professionals in order to maximize the assets of the Funds.

44 As the record in this case shows, 1 vigorously objected to the Receiver's

publicly nnnounced asset divestitures on the part of the Fkmds, arguing that the Receiver's

actions, including his public mmouncements, would be highly damaging to the values of the

Funds. It cost the Funds' investors countless millions of dollars. lt was a series of reckless,

indeed incomprehensible, actions.

45 l cooperated with Receiver at the outset, including in Juiy of 2003, voluntarily

sitting for three days of questioning (this is separate from the Receiver-conducted depositions)

by Receiver's counsel - Craig Rasile. As I was explaining to M r. Rasile the hedge funds

manager's activities, it was apparent that M r. Rasile, who took control of the management

company and the Funds and who was the senior counsel to M r. Steinberg, the éecoul't-

Appointed Receivers'' was a total layman in hedge-ftznd matters. The management of hedge

funds requires a high degree of expertise arrived at. if at ali, after many years of experience.

46 It was also during these meetings - in July of 2003 - that M r. Rasile informed

me that he did not have any prior experience with hedge funds, and that neither did Mr.

Steinberg. l attempted on several occasions to offer my expertise to M r. Rasile and M r.

Steinberg about tlze assets owned by the Funds. And, of course, 1 was highly motivated to

maximize portfolio vaiue, given that 1, unlike the Receiver, had my :tskin in the game.''

Unforttmately, they refused to listen to me or accept my advice, even though l was intimately

fnmiliar with the investments and they had none of the experience that I had. As a result, assets

were soid at distressed prices, far below their value.

10


Case 9:O3-cv-8O612-KAM Document 2740-2 Entered On FLSD Docket 10/29/2013 Page 12 of10O

47 I also realized that the Receiver and his proxies were likely intentionally

damaging asset values, because that would substantially dim inish the portfolio values, which in

turn would lend credibility to the SEC'S complaint, by creating an appearance that some

valuation improprieties had occurred prior to the arrival of the Receiver. No competent and

conscientious manager of the Funds could or would have permitted the extraordinariiy damage

to the Funds caused by Receiver's actions.

48 W hile I did everything I could to cooperate with the Receiver, I did not know

that Receiver was actually working on behalf of the SEC and DOJ. From the inception of the

case, the Receiver was extrem ely antagonistic and biased against me despite my effbrts to

communicate with him and his ignorance of hedge funds and the specifc investm ents.

Nothing 1 saw in the conduct of the Receiver and assistants suggested that he was acting

impartially or neutrally.

49 The Receiver also failed to appoint a temporary portfolio manager over the

Funds to replace the LM G that the Receiver terminated, for several months. W hen the Receiver

finally did select a manager, the Receiver's manager, inexplicably, had no prior experience in

executing the investment strategies practiced by the Funds. 1 objected to Receiver's manager

selection on the grounds that he plainly had no experience in executing investment strategies

executed by Lancer Funds, but to no avail.

50 The SEr -selected Receiver's reckless and inexpert administration of the

Funds, primarily the immediate liquidation of many of their investments (which was also

opposed by many investors), caused staggering damage to the Funds' portfolio values, in

addition to the Receiver's paying, with the Funds' assets, the receivership administrators over

$60 million, which accrued most strikingly to the Receiver's own benefit.

The Receiver and/or his appointed manager also failed to abide by the district

court-fashioned 'tLauer Protocol,'' which stipulated that the Receiver was required to confer

with me on planned divestitures of holdings in the Funds' portfolios. n e Receiver's failure to

abide by the Lauer Protocol caused further damage to the Funds' portfolios.

The Receiver's ecenomically irrational efforts to recover from me very low-

value assets were abusive and had no other eflkct other than to inflate receivership billings,

which accrued directly to the benefit of the Receiver and his associates. No cost-minded

receiver would have sued to obtain such assets because their value was vastly Iess than the cost

of recovery and l presented strong evidence that the assets were not covered by any



recoupment order. A prim e example was the Receiver's persistent attempt to recover a used

GMC SUV. W hen I succeeded in demonstrating that I paid for it personaily, the Receiver

argued that the SUV should be forfeited to him because l supposedly lied to the insurance

company. I explained that the insurance company was the one who suggested the plan and that

my prem iums were larger than if I had done it the way the Receiver claim ed I should have. In

the end, the court ruled that m y supposed false statement to the insurance company resulted in

a forfeiture of the SUV to the Receiver. To this day, l know of no legal basis for such a ruling.

53 Another totally misplaced alld repugnant effort was the SEC'S and Receiver's

eflbrt to deny my m other, Valentina Lauer, access to her bank account, which contained only seven

thousand dollars or so, which consisted mostly of her pension and Social Security proceeds.

54 Having to litigate the case in south Florida rather than the New York City area

when I was deprived of access to any of my assets and could not retain an attorney was

devastating and nearly physically impossible for me to accomplish. Resources that might

otherwise have been available to me, including occasional pro bono assistance from lawyers,

was not feasible because they were not admitted in the district court in the Southern District of

Florida and were not fam iliar with the local rules, among other reasons. The Receiver has

listed dozens of lawyers on his various filings in the district court. I was alone and fbrced to

answer myself the various motions and discovery and other demands tiled by the SEC and the

Receiver. The Receiver alone Eled four separate lawsuits against me, a1l in Florida.

The documents that the Receiver seized on July 1 l , 2003, had been

transported by him to M iami. Because l had virtually no funds to use on travel - 1 participated

in court hearings by telephone - l could not gain access to those records to respond to

discovery and to prepare my case. I learned that the Receiver had prepared an index of the

hundreds of thousands Lancer documents. W ithout that index it was impossible for m e to know

where doeuments were that I needed to answer a number of specific discovery requests relating

to Lancer and me and to prepare m y defense. 1 folmd that I could still not access them because

l did not have the necessary software. The Receiver offered to sell me access to my and the

Lancer documents. But 1 did not have the required tens of thousands of dollars to pay the

Receiver. ln another demonstration of the Receiver's extreme bias, he provided the discovery

index to both the SEC and DOJ free of charge.

56 One of the reasons that I was held in contempt of court was that l was tmable

to review the Lancer and other documents that had been taken and removed by the Receiver to


Case 9:03-cv-8O612-KAM Document 2740-2 Entered On FLSD Docket 10/29/2013 Page 14 of10O

Florida because the SEC and Receiver had fought to deny me any funds that I could use to

defend myself The documents would have provided me with the information that 1 needed to

answer interrogatories more com prehensibly. lt was appalling that the SEC, Receiver and the

district judge were so extremely antagonistic to me, before any adjudication of wrongdoing or

even before there was any adversary hearing on what I had supposedly done wrong.

57 1 was able to provide support for my children and elderly m other only because

of ioans (and occasionally gifts) from relatives and friends. I was unable to find adequate

employment because the SEC'S action destroyed my reputation, and the SEC'S unwillingness

to proceed to triai, with the Court's assent, precluded me from clearing my reputation.

55 After the court amended the freeze order in January of 2004 to allow me

access to a theoretical sum of $ i()s000 a month, l still would not be able to obtain any funds,

because the net proceeds from the sale of my homes, after satisfying court order's provisions.

would not leave any equity, whatsoever. Besides my small children and my mother would

have been homeless. The district judge's sua sponte assets freeze modiûcation was also

incomprehensible because, even if there had been some net equity left, I still wouid have had

nothing for many months until the sale of my residence could be arrartged and completed.

Moreovers the $ 1 0,000 per month that was offered to me on the stipulation that 1 wolzld sell my

homes, was absurdly inadequate to pay for the legal assistance i urgently needed.

59 On several occasions Receiver Steinberg personally pressed me to settle the

SEC case, including on the afternoon of March l 0, 2004, after a court hearing. I did not know

that the Receiver was pressing me as pal't of his arrangement with the SEC. Steinberg was

accompanied by two attorneys from Hunton & W illiams, Craig Rasile and JeffBest. After they

expressed insincere sympathy for my plight (which they were in large measure responsible for)

they oftkred to intercede with Court to modify the asset freeze against me. They led me to

belief that the Court would definitely follow their recommendation.

60 One absolute condition of their assisting me was that I would have to providt

inculpating testimony on what Steinberg described as Etdeep pockets.'' He explained that he

meant the Funds' service providers, including the Funds' auditors, prime broker, and

administrators. I informed Steinberg that I had no such evidence and any statements

incriminating the t'deep pockets'' would necessarily be fabrications. Steinberg, obviously not

concern about the criminal conduct he was proposing, repeated that 1 should think about my

family's hardship, caused by the asset freeze. I refused to participate in what I believed and

13


Case 9:O3-cv-80612-KAM Document 2740-2 Entered On FLSD Docket 10/29/2013 Page 15 of1OO

told Steinberg wouid be a criminal conduct. Following that conversation, the Receiver and his

lawyers made my then extraordinarily stressed life even more dim cult.

6 l Because of the total asset freeze, I could not afford to take depositions of

witnesses, These included witnesses who would have exonerated m e. They also included

witnesses from whom the SEC had obtained false affidavits and whom it wanted to shield from

cross-examination. One of the latter witnesses was Joseph Huard, who worked along with

James Kelly at Shamrock, a brokerage house that Lancer Management occasionally used.

Kelly had been indicted and later acquitted in a companion case. Huard had given a vague but

damaging affidavit that the SEC used extensively in its motion for summary judgment, which

was adopted by Judge M m'ra in his September 2008 order, granting the motion. 1 wanted to

depose Huard, but I could not a/ord to in view of the asset freeze.

62 Finally, in December 20 1 1 . long after the district court had entered sklmmary

judgment and its disgorgement order against me, the Receiver took Huard's deposition in Case

No. 05-60584. Huard's actual sworn testimony turned out to be unsupportive of his alleged

declaration. It plainly failed to incriminate me. No judge could have credited Huard's

supposed incrim inating declaration if I bad bcen able to counter it with bis innocuous

deposition. Huard testified as follows on my cross-examination at his deposition (Exh. G,

pp.9 1 -92):Q... . . Mr Huard, do .m1/ recall a single conversation thatyou to do fmproper trades on Lancer 1ç behalf?A.. 1 don t recall dpet-t/zc conversations at thispoint todayQ. Canyoupoint to any document or have you seen a document that tells you that Lancerdid any impropez asfar as trading stock is concerned?A: I don @ recall any document - I don t recall any document that I've seen on L ancer I

have - I don ? have J/lera here f/z#'(7a? ofmc. l don t recall L ancer documents.Q.' Have you been shown any ofthem by Mr Bane, by the receiver?

-d, l don ? believe 1 have.

we had during which 1 told

63. l also questioned Huard about the very authenticity of the declaration (id., pp. 73-76),

on which the Court relied in its order granting the SEC summary Judgment:

é. Mz Huard, w/l/ composed that declaration?A. 1 don ? remembet I don t iwtpur

Q. But it wc-ç not you, wws' it?A. I - l don 3 believe 1 did. . . .Q. Who approackedyou to do the declaration. l#'J.ç that the Jlvcrâwr.v jjicj attorney?

..4. 1 don t recall any ofthe specscs other than the declaration wJx handed to me to reprto (his.Q. Uh huh. So you don ? even remember w/l/ drahed the declaration?

14


Case 9:O3-cv-8O612-KAM Document 2740-2 Entered On FLSD Docket 10/29/2013 Page 16 of1OO

a4. No.

Q. But it !ç safe to say it wtzxrl t you, sir? lt i' not your Ianguage, is it?A. No, it k not.

64. I was indicted along with codefendants in U S. v. Lauer et al. in February of 2008,

while the SEC'S motion for summaryjudgment was pending. Even though I had no money

and was the sole supporter of my five very young children and an ailing and elderly mother

and had been litigating the SEC case in order to prove my irmocence, the DOJ arrested me. I

was held in detention for approximately two months, in large part because I was unable to

make bail because of the blanket asset freeze. After that, I was subject to house arrest, which

interfered with my ability to represent myself in the SEC case and in actions the Receiver

brought against m e. Later, I learned that the DOJ had presented evidence on me to three grand

juries without obtaining an indictment until a fourth grand jury supposedly indicted me.

65. After my indictment in the criminai case, the SEC and the Receiver were, if

imaginable, still more antagonistic. For example, they fought my effbrt to postpone

depositions in the Partner's case, and a disgorgement hearing in the SEC case, so that I could

prepare my defense in the crim inal case. The consequence of having to try the disgorgement

issue was, among other things, that 1 could not prepare for it adequately for many important

months.

66. The court, m oreover, had prevented me from obtaining any discovery on the

SEC'S and Receiver's theory of disgorgement and the evidence on which they relied by

denying m y motion. Their theory was a novel one and I understand that there wms no case

whcre the SEC sim ply chose to introduce evidence of the defendant's total receipts, without

more proof of any relationship between what I had received and what 1 had enrned durîng the

so-called fraud period. For example, suppose I had received nothing from the Funds or Lancer

during the so-called fraud period. W ould that mean that the SEC and Receiver would have

been satisfied with no disgorgement? That idea is ridiculous. ln other words, there was no

necessary correlation between the amount I received during that period and the nmount of my

alleged ill-gotten gains and none was demonstrated.

67. The only SEC witness at the disgorgement hearing was Soneet Kapila, who

testified to the gross amount I received from the Funds, explicitly noting that his total was

without regard to whether the nmounts were income or were return of capital, payments for

income enrned in other yearss or reimbursement for expenses. The only evidence presented at

15


Case 9:O3-cv-8O612-KAM Document 2740-2 Entered on FLSD Docket 10/29/2013 Page 17 of10O

the hearing on that subject was the audits of Pricewaterhousecoopers, which showed that most

if not a1i the money I had received was incom e earned in years prior to the alleged fraud. ln

sum , there was no evidence to support the amount ordered disgorged.

68. M oreover. the opposition to the delay by the SEC and Receiver imperiled me

in m y criminal case. I was distracted and unable to prepare as thoroughly as I would have

liked. Moreover, the Receiver insisted on taking depositions from me before the criminal trial

in the Partners' case. I complied, answered al1 questions, and never took the Fifth Amendment,

even though it created additional risks for me in the criminal case. 1 was facing a sentence of

30 years in prison, according to my federal defender attorney. The SEC and the Receiver

opposed my motion to use my own funds to hire a lawyer of my choice. As a result, l was

represented by the Public Defender, who was not an expert on hedge funds or securities laws.

69. The government's ultra-thin evidence presented in the criminai proceeding

against me in 2O1 1, which resulted in a prompt acquittal, showed that even eightyears after the

SEC commenced its case, and approximately $ l00 million of costs incurred by the American

tax payers and the Funds' investors (through Receiver's spending) in prosecution of this case,

there was never credible evidence of wrongdoing. There was not a single document that

showed that I had acted contrary to law. The DOJ was not even able to present an expert

witness to support their confused and illogical theories of wrongdoing. Thus, the prosecution,

like the SEC in this case on summary judgment, had only weak anecdotal, entirely

unsubstantiated ailegations.

7O. The SEC/DOJ'S evidence that l had manipulated the value of the portfolio

companies was likewise trivially unpersuasive and unsupported by facts. M oreover, the Funds'

NAV'S calculations and evaluations were made by third parties, including the directors, based

not only on what I presented to them. but other independentiy obtained and verified

information. If anything, the directors and auditors were conservative and the portfolio

companies' market prices were greatly discounted, often more than 50 per cent for final NAV

calculations purposes.

The DOJ's case was so weak that neither my codefendant Martin Garvey nor 1

put on a defense. ln other words, based on the govemment's evidence, there wms insuë cient

proof from which the jury found or could find me guilty beyond a reasonable doubt. That is

virtually identical to the summary judgment standard.72. The acquittal came while my appeal was pending. Because I was a laym an

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Case 9:O3-cv-8O612-KAM Document 2740-2 Entered on FLSD Docket 10/29/2013 Page 18 Of1O0

and pro se in SEC v. Lauer, it never occurred to me to ask the Court of Appeals to remand the

case in view of the evidence presented at the criminal trial and thejury's acquittal. 1 had been

greatly prejucliced in the criminal trial and in this case by the collusion between the Receiver

SEC and DOJ. I believe that the Court of Appeals would have looked with favor on such a

motion because of m y pro ,%e status, the marmer in which the SEC had conducted the civil case,

and the joint participation of the SEC and the DOJ in both cases. I remained pro se until mid-

Jarmary 2012, about two weeks before oral argument.

73. W hen the FB1 arrested me on the indictm ent, it illegally seized my iphone. DOJ's

lawyer, Harold Schirnkat, who had previously worked for the SEC in SEC u L auer before

transferring to DOJ to work on the criminal case, told Judge Jordan that he had already given the

information on the iphone to the Receiver! U S. v. Lauer, DE 351, DE 497, pp.7-8 & = .8, 11 .

This is another example of the cozy and substantial relationship between Receiver Steinberg and

DOJ, which was enonnously prejudicial to me. Judge Jordan granted my motion to suppress and

ordered DOJ to return the iphone to me. Steinberg assured Judge Jordan that he and the many

others to whom he had giA'en the illegally seized information would not tlse it. ld. Despite that

specitk representation to a federal judge, the Receiver proceeded to use the suppressed

information on my iphone at the later questioning of Heidi Carens tand perhaps others) at their

depositions.

h, Michaei Lauer, octoberql . , 2O$ 'submitted under oat

1

M ICHAEL LAUER

17


CERTIFICA TE OF SERVICE

I HEREBY CERTIFY that on this 31St day of October, a true and correct copy of the

foregoing has been sent by first-class mail to:

Christopher Martin, Esq.

Securities & Exchange Commission

80l Brickell Avenue

Suite 1800

M iam i, FL 33131

and

David Bane, Esq.

Hunton & W illiam s

l l 1 1 Brickell Avenue

Suite 2500

M iami, FL 3313 1

o

David M . Dorsen

Attorney for M ichael Lauer


Documents

Pursuant to 28 U.S.C. j 455(a), Michael Lauer hereby moves