848 F. Supp. 2d 1195
D. Haw.2012Background
- Dubin is a Honolulu attorney and relief defendant in a CFTC action alleging ill-gotten WeCorp funds were paid to him as a retainer; the retainer was to be used for WeCorp-related legal services.
- WeCorp engaged DLO and other consultants for a legal audit, document drafting, banking controls, and licensing assistance; a $70,000 retainer was paid to DLO, allegedly flat fee.
- WeCorp’s operations involved forex trading; Dubin contemplated a DF-WeCorp merger and discussed a JVA with DF funding WeCorp’s forex program.
- WeCorp wired $85,000 to DLO’s client trust, Dubin withdrew the full retainer, and later advised on options to legitimize or wind down WeCorp’s activities.
- CFTC sought disgorgement of the funds and relief against Dubin as a nominal defendant; Dubin moved for summary judgment asserting ownership and legitimate services; court denied initial motions but later granted Dubin’s countermotion and dismissed him for lack of jurisdiction.
- Court’s final disposition: CFTC’s summary judgment motion denied and Dubin’s relief defendant countermotion granted; action dismissed as to Dubin for lack of jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dubin has a legitimate ownership claim to the retainer. | CFTC: funds ill-gotten; Dubin held only as nominal defendant with no legitimate claim. | Dubin: performed services; has ownership; not a relief defendant. | Dubin has legitimate ownership; relief defendant treatment not proper. |
| Whether Dubin’s claimed services were reasonably equivalent value for the retainer. | No value; services prolonged the Ponzi scheme; funds must be returned. | Dubin provided independent value; advised on compliance and structure. | Dubin’s services provided reasonably equivalent value. |
| Whether Dubin’s conflict of interest bars relief defendant status. | Conflict invalidates any ownership claim to the funds. | Conflict does not strip ownership; consent and independent services. | Conflict does not defeat ownership; relief defendant status denied. |
| Whether the court has jurisdiction over Dubin as a relief defendant in light of ownership and services. | Relief defendant framework applies; jurisdiction exists to disgorge ill-gotten gains. | Ownership and services remove Dubin from relief defendant posture. | No jurisdiction as relief defendant; Dubin dismissed. |
| Whether Dubin’s actions constitute evidence of ill-gotten gains to justify relief. | Dubin benefited from retainer tied to WeCorp’s fraud. | Evidence shows services of value; not solely conduit for fraud. | Not dispositive; ownership and value negate relief defendant status. |
Key Cases Cited
- SEC v. Colello, 139 F.3d 674 (9th Cir. 1998) (a nominal defendant may be used to marshal assets; court has equitable power to relief third parties)
- Ross v. United States, 504 F.3d 1130 (9th Cir. 2007) (vendor/employee with compensation has presumptive title; relief inconsistent with ownership if not legitimate)
- Kimberlynn Creek Ranch, Inc. v. CFTC, 276 F.3d 187 (4th Cir. 2002) (ownership must be legitimate and not a sham; relief limited to genuine ownership)
- Resource Development Intl., LLC, 487 F.3d 295 (5th Cir. 2007) (retainer in Ponzi context not necessarily confer value; cases distinguish nominal defendants)
- Warfield v. Byron, 436 F.3d 551 (5th Cir. 2006) (payments to recruiters in Ponzi schemes may lack reasonably equivalent value)