Free Response in Opposition to Motion - District Court of California - California

Case 3:08-cv-00764-BEN-NLS

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1 JOHN M. McCOY III, CaL. Bar

No.

166244

Email: mccoyj~sec.gov

2 MARC J. BLAU, CaL. BarNo. 198162

Email: blaum~sec.gov

3 PETER F. DEL GRECO, CaL. BarNo. 164925
Email: delgrecop~sec.gov

4

Attorneys for Plaintiff

5 Securities and Exchange Commission

Rosalind R. Tyson, Regional Director 6 Michele Wein Layne, Associate Regional Director 5670 Wilshire Boulevard, 11 th Floor
7 Los Angeles, Californa 90036

8

Telephone: (323) 965-3998 Facsimile: (323) 965-3908

9

UNITED STATES DISTRICT COURT

10
11

SOUTHERN DISTRICT OF CALIFORNIA
SECURITIES AND EXCHANGE COMMISSION, Case No. 08-CV-0764 BEN (NLS)

12

Plaintiff,
13

vs.
14

OPPOSITION OF PLAINTIFF SECURITIES AND EXCHAGE COMMISSION TO DEFENDANT MATTHEW LA MADRID'S MOTION TO
STAY PROCEEDINGS
DATE: TIME: PLACE:

15 MADRID
16

PLUS MONEY, INC, and MATTHEW LA
Defendants,
and

17

AUGUST 11, 2008 10:30 A.M. COURTROOM 3 (HON. ROGER T. BENITEZ)

18 THE PREMIUM RETURN FUND LIMITEDLIABILITY LIMITED PARTNERSHIP, 19 THE PREMIUM RETURN FUND II LIMITEDLIABILITY LIMITED PARTNERSHIP, 20 THE PREMIUM RETURN FUND III LIMITEDLIABILITY LIMITED PARTNERSHIP, RETURN 21 FUND LLC, RETURN FUND II, LLC, RETURN FUND III, LLC, RETURN FUND IV, LLC, 22 RETURN FUND V, LLC, RETURN FUND VI, LLC, PALLADIUM HOLDING COMPANY, and 23 DONALD LOPEZ,

24 Relief Defendants.
25

26 27 28
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TABLE OF CONTENTS
1

2
3

Page
i.
II.

INTRODUCTION AND SUMMARY OF ARGUMENT ................................................. 1

4
5

STATEMENT OF FACTS AND PROCEDURAL HISTORy.......................................... 1
ARGUMENT ...................................................................................................................... 2
A. The Supreme Court And The Ninth Circuit Have Held That

III.

6 7
8

A Defendant Is Not Entitled To A Stay Even When Criminal
Charges Are Pending ............................................. ................... ..... ....... .......... ..... .... 2

9 10

B. The Factors Identified By The Ninth Circuit Establish That
A Stay Is Not Appropriate InThis Case.................................................................. 4
1. A Stay Would Substantially Prejudice The Commission

11

And The Receiver........................................................................................ 4
2. Proceeding With This Action Wil Not Impose An Undue

12
13

Burden On La Madrid ................................................. ....... ..... ..................... 6
a) Because No Criminal Proceeding Is Pending, La Madrid's

14
15

Request For A Stay Is Especially Weak........................................... 6
b) La Madrid's Own Statements And Conduct Furher

16

Undermine His Request For A Stay. ................................................ 7
3. Judicial Economy Does Not Warant A Stay.............................................. 8
4. A Stay Would Impose A Drastic And Inequitable Burden

17
18 19

On Defrauded Investors............................................................................... 8
5. The Public Interest Strongly Favors The Timely
This Action And The Denial Of La Madrid's Motion For A Stay..................................................................................... 10 Prosecution Of

20
21

22
C. Even If A Partial Stay W ere Waranted, It Would Be Improper

23

24
25
IV.

And Unduly Prejudicial To The Defrauded Investors To Stay The Entire Action. ................................................................................................. 10
CONCLUSION ....................... ..................... .......................................... .......... ..... ..... ....... 11

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TABLE OF AUTHORITIES
1

2
3

Page

CASES
Baxter v. Palmigiano

4

5 425 U.S. 308, 96 S. Ct. 1551 (1976) ...................................................................................3
6
7
8

Chronicle Publishing. Co. v. Nat 'l Broadcasting Co.
294 F .2d 744 (9th Cir., 1960) ...................... .................................. ....................................... 8

Federal Sav. & Loan Ins. Corp. v. Molinaro 889 F.2d 899 (9th Cir. 1989)................................................................ 1,3,4,6, 7, 9, 10, 11

9

FTC v. J.K. Publications, Inc.
10
11

99 F. Supp. 2d 1176 (C.D. CaL. 2000).........................................................................4, 8, 9

12
13

Golden Quality Ice Cream Co. v. Deerfield Specialty Papers, Inc. 87 F.R.D. 53 (E.D. Pa. 1980) ............................................................................................... 4
IBM Corp. v. Brown 857 F. Supp. 1384 (C.D. CaL. 1994).................................................................................... 8
In re Worldcom, Inc. Sec. Litig. 2002 WL 31729501 (S.D.N.Y. Dec. 5,2002).....................................................................6

14
15

16 17
18

Keating v. OTS
45 F.3d 322 (9th Cir. 1995).............................................................................. 1,3,4, 10, 11

19

SEC v. Brown 2007 WL 4191998 (D. Minn. Nov. 21, 2007)..................................................................... 6
SEC v. Dresser Industries, Inc.

20
21

628 F.2d 1368 (D.C. Cir. 1980) .............................................................................. 2, 3, 4,6
22
23
SEC v. Jones

2005 WL 2837462 '(S.D.N.Y. Oct. 28, 2005) ..................................................................... 7
SECv. Kornman

24
25

2006 WL 148733 (N.D. Tex. Jan. 18,2006)....................................................................... 7
SEC v. Mutuals.com, Inc. 2004 WL 1629929 (N.D. Tex. 2004) .................................................................................. 8

26 27 28

SEC v. Rivell 2005 WL 2789317 (D. Colo. Oct. 26, 2005) ...................................................................... 6

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1

SEC v. Sandifur 2006 WL 1719920 (W.D. Wash. June 19, 2006)................................................................ 6

2

SEC v. Treadway 3 2005 WL 713826 (S.D.N.Y. Mar. 30,2005) ..................................................................... 6

4 Standard Sanitary Mfg. v. United States

5

226 U.S. 20, 33 S. Ct. 9 (1912) ...........................................................................................2

6
7
8

United States v. Kordel 397 U.S. 1,90 S. Ct. 763 (1970) ......................................................................................... 4

9
10
11

12
13

14
15

16
17
18

19

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21

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23

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25

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1

I. INTRODUCTION AND SUMMARY OF ARGUMENT
Plaintiff Securities and Exchange Commission ("Commission") seeks in this action to
enjoin violations of the federal securities laws and to recover - to the extent possible - tens of

2
3

4
5

milions of dollars stolen from trsting investors by Matthew La Madrid. Many of those
investors entrusted La Madrid with their lives' savings or the equity in their homes. Many now
face the loss of their homes, their retirement savings, or both. The timely and effective
prosecution of

6
7
8

this lawsuit and prompt, effective work by the court-appointed receiver are the

best hope these investors have for at least a parial recovery of their investments.
La Madrid asks the Court to stay this case completely and indefinitely pending the

9
10
11

completion of a potential criminal proceeding that has not actually been filed - but which he
suggests might be filed against him at some unspecified point in the future. See Memorandum of
Points and Authorities In Support Of

12
13

Motion To Stay Proceedings Pending Resolution Of

Criminal Action ("Stay Motion"). Such a result would indefinitely postpone the resolution of
this matter, impair and delay the potential recovery oflosses suffered by defrauded investors,

14
15

frstrate the Commission's statutory mission to enforce federal securities laws, and tie the hands
ofthe cour-appointed Receiver.

16 17
18

The applicable law is clear. "The Constitution does not ordinarly require a stay of civil
proceedings pending the outcome of criminal proceedings." Keating v. OTS, 45 F.3d 322,324
(9th Cir. 1995); accord Federal Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir.

19

20
21

1989). And a defendant's argument for a stay is "far weaker" when - as is the case here - no
criminal charges have actually been filed. Molinaro, 889 F.2d at 903. La Madrid acknowledges

22
23

that Keating and Molinaro set forth the governng law. Stay Motion at 7. He mischaracterizes
their analyses, however, and pointedly ignores their actual holdings - both Keating and Molinaro
held that pending or threatened criminal proceedings did not justify a stay of overlapping

24
25

criminal proceedings. Keating, 45 F.3d at 326; Molinaro, 889 F.2d at 903.

26 27
28

II. STATEMENT OF FACTS AND PROCEDURA HISTORY
On April 28, 2008, the Commission filed its Complaint in this action, alleging that

defendants Matthew La Madrid and Plus Money, Inc. engaged in securities fraud in violation of
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1 the Investment Advisers Act of 1940. The claims for relief against La Madrid and Plus Money
2 arse from the Defendants' solicitation and misappropriation of

more than $30 milion dollars

3 from investors in purported hedge funds known as the "Premium Return Funds".

4 This Court issued a Temporary Restraining Order ("TRO") against the Defendants and
5 others on April

30, 2008. On May 16,2008 the TRO was converted into a Preliminary

6 Injunction which, among other things, enjoined La Madrid from future violations of the federal
7 securities laws, imposed an asset freeze, appointed a Permanent Receiver over Plus Money and

8 the Premium Return Funds, and ordered La Madrid to produce a complete and detailed schedule
9 of assets within five days.

10 La Madrid has refused to provide the schedule of assets required by the Preliminar

11 Injunction. He has declined to fie an Answer to the Complaint, although his time to do so has
12 ru. Declaration of John M. McCoy III ("McCoy Decl."), irir 2-3.

13 La Madrid is also a plaintiff in the action styled Matthew La Madrid, et al. v. Heriberto
14 Lopez Perales, et at., U.S.D.C. (Southern District of

California) Case No. 08-CV-0823 BEN

15 (POR) (the "Perales Lawsuit"), which is pending before this Court. In the Perales Lawsuit, La

16 Madrid makes extensive factual allegations regarding events - including his handling of
17 Premium Return Fund investor funds - that are also at issue in this action.

18 III. ARGUMENT
19

20

A. The Supreme Court And The Ninth Circuit Have Held That A Defendant Is Not Entitled To A Stay Even When Crimal Charf!es Are Pendinf!
litigation

21 The Supreme Court has held that a defendant is not entitled to a stay of civil

22 merely because criminal charges are pending against him. It is well established that parallel civil

23 and criminal proceedings can be brought and pursued against the same defendant

24 "simultaneously or successively." See Standard Sanitary Mfg. v. United States, 226 U.S. 20, 52,
25 33 S. Ct. 9, 16 (1912).

26 "In the absence of substantial prejudice to the rights of the paries involved, such parallel
27 proceedings are unobjectionable." SEC v. Dresser Industries, Inc., 628 F.2d 1368, 1374 (D.C.

28 Cir. 1980). "The Constitution does not ordinarily require a stay of civil proceedings pending the
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1 outcome of criminal proceedings." Keating, 45 F.3d at 324, citing FSLIC v. Molinaro, 889 F.2d
2 at 902, and Dresser, supra at 1376.

3 In Keating, the Ninth Circuit rejected Charles Keating's argument that overlapping civil

4 and criminal proceedings entitled him to a stay of the civil proceedings. In affirming an
5 administrative law judge's refusal to stay the Office of

Thrft Supervision's civil case against

6 Keating, the Ninth Circuit ruled that "(a J defendant has no absolute right not to be forced to
7 choose between testifyng in a civil matter and asserting his Fifth Amendment privilege. Not

8 only is it permissible to conduct a civil proceeding at the same time as a related criminal
9 proceeding, even if that necessitates invocation of the Fifth Amendment privilege, but it is even
10 permissible for the trer of fact to draw adverse inferences from the invocation of

the Fift

11 Amendment in a civil proceeding." Keating, 45 F.3d at 326, citing Baxter v. Palmigiano, 425
12 U.S. 308, 318, 96 S. Ct. 1551, 1557 (1976).

13 In FSLIC v. Molinaro, the defendant argued that the FBI was investigating the same
14 activities that caused the FSLIC to fie a civil action against him. The Ninth Circuit upheld the
15 district cour's denial of

Molinaro's motion to stay the civil proceeding, holding that while "a

16 distrct court may stay civil proceedings pending the outcome of

parallel civil proceedings, such

17 action is not required by the Constitution" and the decision to stay should be made "in light of
18 the paricular circumstances and competing interests involved in the case." Molinaro, 889 F.2d

19 at 902 (citations omitted).

20 In Keating and Molinaro, the Ninth Circuit identified the factorsl that generally should be

21 considered when a stay is requested:
22 (1) the interest of the plaintiff in proceeding with the litigation or any paricular aspect of
23 it, and the potential prejudice to the plaintiff of a delay;
24 (2) the burden which any paricular aspect of the proceedings may impose on defendants;

25

26 27
28

1 La Madrid suggests that Keating and Molinaro apply a six-factor test. Stay Motion at 7. This is incorrect. Both Keating and Molinaro enumerate five factors, not six. Recognizing that the standard actually used by the Ninth Circuit is not favorable to him, La Madrid responds by making up (but attributing to the Ninth Circuit) his own test, one which elevates La Madrid's preference to avoid a formal invocation ofthe Fifth Amendment into an independent "factor".
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1 (3) the convenience ofthe court in the

management of

its cases, and the efficient use of

2 judicial resources;
3 (4) the interests of persons not paries to the civil

litigation; and
litigation.

4 (5) the interests of

the public in the pending civil and criminal

5 See Molinaro, 889 F.2d at 903 (citing Golden Quality Ice Cream Co. v. Deerfeld
6 Specialty Papers, Inc., 87 F.R.D. 53, 56 (E.D. Pa. 1980); Dresser, 628 F.2d at 1376; and United
7 States v. Kordel, 397 U.S. 1,90 S. Ct. 763 (1970)); Keating, 45 F.3d at 325.

8 Where - as here- no criminal indictment is pending, "the case for staying civil
9 proceeding is 'a far weaker one.''' Molinaro, 889 F.2d at 903, citing Dresser, 628 F.2d at 1376.
10 "The possibility that criminal indictments would be brought against Molinaro may have made
11 responding to civil charges more difficult for him, but the court did not abuse its discretion by

12 deciding that this difficulty did not outweigh the other interests involved. Under the

13 circumstances presented to the district court when the motion was made, the court did not abuse
14 its discretion by denying Molinaro's motion for a stay." Id.
15

16
i7

B. The Factors Identified By The Ninth Circuit Establish That A Stay Is Not Appropriate In This Case 1. A Stay Would Substantially Prejudice The Commssion And The

Receiver .

18 La Madrid argues weaky that delay would not be prejudicial to the Commission. Stay

19 Motion at 12. The law and common sense both say otherwise.
20 The Ninth Circuit has held that the Commission has a strong and legally cognizable

21 interest in timely pursuing civil actions to obtain judgments of permanent injunction against La

22 Madrid and other potential defendants, obtain orders that il-gotten gains be disgorged, and seek

23 the imposition of civil penalties to punsh wrongdoers for their violations of the federal securties
24 laws. See Molinaro, 889 F.2d at 903; see also FTC v. J.K. Publications, Inc., 99 F. Supp. 2d
25 1176, 1197 (C.D. CaL. 2000) (recognzing governent agencies' strong interest in avoiding delay
26 in civil enforcement proceedings). A stay of

this action would allow evidence to become stale,

27 witnesses' memories to fade, and missing assets to be further dissipated.
28 Similarly, the Receiver's efforts to marshal and account for assets stolen from the
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1 investors - including the use of discovery from La Madrid to investigate his use and diversion of

2 investor funds - should proceed apace. Indeed, La Madrid has asserted in the Perales Lawsuit
3 that substantial investor fuds were misappropriated by individuals and entities other than

4 himself. Depriving the Receiver ofthe ability to utilize the discovery process and this Court's
5 compulsory authority to pursue those and other assets would drastically undermine the
6 Receiver's abilty to fulfill his duties to this Court and the investors. See Opposition of

Stephen

7 J. Donell, Receiver, To Defendant Matthew La Madrid's Motion To Stay Civil Proceedings
8 Pending Resolution Of

Criminal Action ("Receiver's Opp.") at 6-8.

9 The Commission and the Receiver each have a compellng interest in proceeding
1 0 expeditiously to protect the defrauded investors, discover the full scope of wrongful conduct,

i 1 identify and preserve critical evidence, locate and recover assets, and begin the complex and

12 lengthy processing of formulating and implementing relief to mitigate the har the defrauded
13 investors have suffered and continue to suffer.

14 ~ Moreover, while La Madrid asserts that this action and the inchoate criminal investigation

15 cover the same subject matter, he clearly has no basis for makng such a sweeping
16 generalization. They may well overlap, as both concern La Madrid's fraudulent activities as a
17 purorted investment advisor and investment manager. But at this point, even the Commission

18 canot say with certainty what scope of conduct ultimately wil be encompassed by this action.
19 The Commission and the Receiver have received numerous communcations from investors
20 suggesting that La Madrid's fraudulent conduct was much broader than what has been alleged in

21 the Complaint. The Commission continues to investigate these allegations and wil amend its
22 complaint if discovery reveals appropriate grounds for doing SO.2 McCoy Decl., ir 5. The
23 Commission understands that the Receiver is also investigating these additional allegations - an

24
25

26 27
28

the investigation being conducted by the criminal authorities. Neither, of course, does La Madrid. The Commission notes, however, that the criminal authorities have finite resources that they can devote to this matter and may have enforcement priorities different from those of the Commission. At present, La Madrid is the only person who knows the full range of his own conduct, and his tactical effort to preserve that status quo runs directly counter to the public interest generally and the interests of those who had the misfortne to invest with La Madrid in paricular.
2 Nor does the Commission know the precise scope of

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1 investigation made more timely, costly, and difficult by La Madrid's persistent stonewalling and
2 obstructionism. These investigations would be stymied by a stay of

this case - which is

3 precisely why La Madrid seeks a broad, indefinite stay.
4
5

2. Proceedin2 With This ActionWil Not Impose An Undue Burden On La

Madrid
a) Because No Crimial Proceedinf! Is Pendin2. La Madrid's Request

6

For A Stay Is Especially Weak
As previously noted, "(t)he case for staying civil proceedings is 'a far weaker one' when
'(n)o indictment has been retued. . .''' Molinaro, 889 F.2d at 903, citing

7
8

Dresser, 628 F.2d at

9 10
11

1376. "(A) stay of a civil case is an 'extraordinary remedy,' and 'stays will generally not be
granted before an indictment is issued.''' SEC v. Brown, No. 06-1213,2007 WL 4191998 (D.

Minn. Nov. 21,2007) (finding no basis for stay even though defendant had received a "target
letter" from the U.S. Attorney's Office). Accordingly, courts routinely decline to stay civil proceedings when a related criminal matter is stil in the investigatory stage. See, e.g., SEC v.
Treadway, No. 04-CIV-3463 WM JCF, 2005 WL 713826, at *3 (S.D.N.Y. Mar. 30,2005); In re
Worldcom, Inc. Sec. Litig., Nos. 02 Civ. 3288,02 Civ. 4816, 2002 WL 31729501, at *4

12
13

14
15

16

(S.D.N.Y. Dec. 5,2002); SECv. Sandifur, No. C05-1631C, 2006 WL 1719920 (W.D. Wash.

17
18

June 19,2006); SEC v. Rivell, No. Civ.A 05-CV-I039-RPM, 2005 WL 2789317 (D. Colo. Oct.
26, 2005).

19

La Madrid has not been indicted. Indeed, it appears that no indictments whatsoever - of
La Madrid or anyone else - have been issued in connection with the investigation La Madrid
references. And in the absence of an indictment, the Court has no way of knowing what conduct

20
21

22
23

a hypothetical futue indictment might cover ifit is ever issued. Nor does La Madrid offer
anything beyond self-serving hearsay to suggest that an indictment may be "imminent" - no

24
25

target letter, no plea agreement or proffer letter - which one would normally receive if "fully
cooperating" with an ongoing criminal investigation. See Motion to Stay. at 8 and accompanying

26 27
28

Declaration of Joseph N. Casas, ir 7 (declarng that La Madrid is "fully cooperating" with

USAO's criminal investigation). Nor has the U.S. Attorney's Office intervened to support La
Madrid's request for a stay, as might be expected if

La Madrid were trly cooperating with an

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1

ongoing investigation. Nor does La Madrid explain what the Court should take the term

2
3

"imminent" to mean in this context. If La Madrid is indicted, does he expect it to occur in a

month? In six months? In a year?3
This sort of

4
5

uncertainty is exactly why the Ninth Circuit held in Molinaro that the case for

a stay in such circumstances is "far weaker" than when there is an actual, pending indictment to
define and sharpen the issues. Molinaro, 889 F.2d at 903.

6 7
8

b) La Madrid's Own Statements And Conduct Further Undermie His Request For A Stay.
Whle La Madrid asserts repeatedly that his is "fully cooperating" with the United States
Attorney's Office's pending criminal investigation, he provides no concrete facts ilustrating

9 10
11

such cooperation. But "full cooperation" with the criminal investigation must include at a
minimum providing the criminal authorities with factual information about the events in

12
13

question. And if La Madrid is truly providing such "full cooperation" to the criminal authorities
he has waived his Fifth Amendment privilege and has no need to assert it in this proceeding except to the extent it serves his tactical interest in delay and obfuscation.4 In other words, La
Madrid has no Fifth Amendment interest in withholding in this proceeding facts that he

14
15 16 17 18 19

purportedly is disclosing directly to the criminal authorities. His only interest in suppressing the

20
21

3 The absence of an actual indictment is especially signficant when one considers that La

22
23

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25

26
27
28

Madrid argues that this action should be stayed until the "resolution of the AUSA investigation and statute of limitations." Stay Motion at 5: 20-21. As the Complaint in this action alleges conduct continuing at least though March 2007, La Madrd is apparently asking this Cour to stay the case until April 2012 (assuming arguendo the applicable statute oflimitations is five years). 4 As the Cour is aware, the United States Attorney's Office wil intervene in and request a stay of civil litigation when it feels the continuation of that litigation wil interfere with contemplated or ongoing criminal proceedings - such as by compromising a cooperating witness. Even when the United States Attorneys Offce does intervene in Commission enforcement proceedings because there is an active criminal prosecution, courts do not automatically stay discovery. See, e.g., SEC v. Kornman, No.Civ.A. 04-CV-1803L, 2006 WL 148733 (N.D. Tex. Jan. 18,2006); SEC v. Jones, No. 04 Civ. 4385(RWS), 2005 WL 2837462 (S.D.N.Y. Oct. 28,2005). Regardless, it is noteworthy that the criminal authorities with whom La Madrid claims he is "fully cooperating" do not join his request for a stay.
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1 facts in this case is a pecuniar one - an interest to which no Constitutional privilege or
2 protection attaches.

5

3

3.

Judicial Economy Does Not Warrant A Stay

4 As he does elsewhere in the Motion, La Madrid ignores relevant authority and instead
5 cites inapposite cases that do not stand for the propositions La Madrid urges. In SEC v.

6 Mutuals.com, Inc., 2004 WL 1629929 (N.D. Tex. 2004), the Court granted a motion to stay fied
7 by the U.S. Attorney's Office (and not opposed by the SEC) on the grounds that maintenance of

8 simultaneous actions would interfere with the effcient prosecution of the criminal matter. Id. at
9 *4. The criminal authorities have made no such request here.

10 Chronicle Publishing Co. v. Natl Broadcasting Co., 294 F.2d 744, 747-48 (9th Cir.,
11 1960) is even farher afield. Indeed, the case did not involve parallel criminal and civil
12 proceedings at all- La Madrid's inaccurate characterization of

the case not withstanding. In

13 Chronicle Publishing, a private lawsuit challenged a proposed merger in the broadcast media
14 field on antitrst grounds. The court stayed the action pending the completion of an ongoing
15 Federal Communcations Commission review of

the proposed merger. The decision was

16 explicitly grounded in the requirements of complex antitrust litigation and the fact that 17 regardless of the outcome of the private lawsuit - the proposed merger could not proceed without

18 FCC approval. Id. Neither the facts nor the holding of the case have any relevance here.
19 By way of contrast, relevant case law recognzes that an indefinite stay of proceedings is
20 contrar to the efficient use of

judicial resources. FTC v. J.K. Publications, Inc., 99 F. Supp. 2d

21 at 1197; see also IBM Corp. v. Brown, 857 F. Supp. 1384, 1392 (C.D. Cal. 1994) ("(a) stay

22 would disrupt the cour's calendar by indefinitely postponing trial").
23
4. A Stay Would Impose A Drastic And Inequitable Burden On Defrauded

24

Investors

25 La Madrid's argument that a stay would be in the interest of non-parties is disingenuous
26 at best, and is flatly contradicted by all of

the relevant case law. The most important non-paries

27 28

5 Moreover, La Madrid fied an affirmative civil complaint - currently pending before this Court - making affirmative factual allegations about his management of investor fuds.
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1 are, of course, the Premium Return Fund investors. The law recognizes and protects the interests

2 of defrauded investors in prompt recovery of restitution or disgorgement and disfavors stays that
3 delay such potential recoveries. See Molinaro, 889 F.2d at 903 (victims' interest in prompt

4 recovery weighs heavily against request for stay); J.K. Publications, 99 F. Supp. 2d at 1176

5 (same). La Madrid convinced investors to take second mortgages on their homes and invest the
6 loan proceeds with him, or to entrst him with their retirement accounts and lives' savings.
7 Many now find themselves in dire economic circumstances as a direct result of

La Madrid's

8 misappropriation oftheir savings. Forcing them to wait in limbo while this case is stayed
9 indefinitely - in deference to La Madrid's preference for avoiding hard litigation choices 10 would be a serious miscarage of

justice. Indeed, La Madrd's cavalier disregard for the

11 hardships to which he has subjected these investors adds insult to their substantial economic

12 llJunes.
13 It bears repeating that a stay not only wil delay signficantly any recovery by the
14 defrauded investors, but also may substantially reduce the amount of any such recovery. To
15 date, the Commission and the Receiver have only located a portion of

the misappropriated funds.

16 In his motion and supporting declaration, La Madrid suggests strongly that he may have taken
17 steps to secrete his il-gotten gains before this action was filed. See Stay Motion at 13: 9-10
18 ("Mr. La Madrid has not attempted to secrete his assets since April

1 , 2008 . . ."). To the extent

19 La Madrid has secreted assets, a stay wil give La Madrid and his transferees or co-conspirators
20 the opportnity to furter dissipate or secrete those assets while the Commission and the

21 Receiver are unable to use this Court's authority to pursue and recover them.6

22 In short, the interests of the non-pary investors - the most important consideration before

23 the Court - weigh heavily against the requested stay.
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25

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6 Of course, the risk that secreted assets may be moved beyond the reach of the Commission and the Receiver is heightened by La Madrid's refusal to company with this Court's order that he provide a detailed schedule of assets. Simply put, La Madrid won't tell the Court where his assets are, and he seeks a stay to obstrct the efforts of the Commission and the Receiver to look for them.
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5. The Public Interest Stronf!IY Favors The Timely Prosecution Of This
1

Action And The Denial Of La Madrid's Motion For A Stay

2 The public interest does not favor a stay. The Commission brought this civil enforcement
3 action in the public interest. The Commission, which is statutorily charged with the enforcement
4 of

the federal securities laws in the public interest, has a strong interest in the timely prosecution

5 and resolution of civil enforcement proceedings. A stay would run counter to the public's

6 compellng interest in the fair, effcient, effective, and swift enforcement of the federal securities
7 laws. See Keating, 45 F.3d at 325 (recognizing public interest favors timely resolution of civil
8 action and weighs against stay); Molinaro, 889 F.2d at 903 (same).

9 Indeed, in Keating - the primar case on which La Madrid relies - the Ninth Circuit held
10 that the public's interest in "a speedy resolution of

the controversy" outweighed Keating's

11 asserted interest in avoiding reliance upon his Fifth Amendment rights, and that the compellng

12 public "concern for efficient administration would (be) unecessarly impaired" by the
13 imposition of a stay. Keating, 45 F.3d at 325.
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15
c. Even If A Partial Stay Were Warranted. It Would Be Improper And Unduly

Prejudicial To The Defrauded Investors To Stay The Entire Action.

16 La Madrid's grounds his request for a stay on his concern that he might have to invoke
17 his Fifth Amendment rights ifthis case is allowed to proceed.? But the relief

he seeks - a stay of

18 the entire action - is far broader than would be necessar to avoid putting him to that choice. La

19 Madrid's Fifth Amendment rights come into play only ifhe is forced to offer testimony in his
20 defense. There is no justification whatsoever for staying critical aspects of the case - such as
21 third-pary discovery or motions to amend the case as necessar to add additional parties and

22 claims for relief. Nor, of course, should any stay preclude the Commission or the Receiver from
23 addressing possible violations of this Court's existing injunction. As discussed in Section B.l,
24 supra, such an overbroad stay would improperly tie the hands of

the Commission and the

25

26
7 As noted elsewhere, this choice might be a difficult one for La Madrid, but it is not an

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impermissible one. "A defendant has no absolute right not to be forced to choose between testifyng in a civil matter and asserting his Fifth Amendment privilege." Keating, 45 F.3d at
326.
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1 Receiver, with potentially disastrous consequences for defrauded investors. See Receiver's Opp.

2 at 6-8.
3 The Commission maintains that any stay would be inappropriate under the standards

4 ariculated in Keating and Molinaro. But should the Court disagree, any stay should limited to
5 discovery or dispositive motions that would require testimonial evidence from La Madrid, and
6 not to discovery or other matters directed to other paries or potential new paries.

7 IV.

CONCLUSION

8 The interests the Court must balance are clear. On one side of the balance rest the
9 interests of the public in general, and the investors defrauded by La Madrid in paricular, in a
10 timely resolution ofthis case and the continuation of

the Commission's and the Receiver's

11 ongoing efforts to limn the scope of misconduct and to locate and secure available assets. On the
12 other is La Madrid's tactical preference to avoid some difficult choices about how best to defend
13 this action while concerned about the possibility that he might someday face criminal charges
14 that have yet to be fied.

15 The fads of this case, as measured against the standards set forth in Keating and
16 Molinaro, weigh decisively against the requested stay. For all ofthe foregoing reasons, the
17 Commission respectfully urges the Court to deny La Madrid's motion in its entirety.
18

19 DATED: July 25,2008
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Respectfully submitted,

22
23

Isl John M. McCoy III John M. McCoy III Attorney for Plaintiff Securities and Exchange Commission

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PROOF OF SERVICE
1

2
3

I am over the age of 18 years and not a pary to this action. My business address is:
(X)

U.S. SECURITIES AND EXCHANGE COMMISSION, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648

4 Telephone No. (323) 965-3998; FacsimileNo. (323) 965-3908.

5 On July 25, 2008, I caused to be served the document entitled OPPOSITION OF PLAINTIFF

SECURITIES AND EXCHANGE COMMISSION TO DEFENDANT MATTHEW LA 6 MADRID'S MOTION TO STAY PROCEEDINGS on all the paries to this action addressed
7
8

as stated on the attached service list:
(X)
MAIL: By placing in sealed envelope(s), which I placed for collection and OFFICE mailing today following ordinar business practices. I am readily familiar with this agency's practice for collection and processing of correspondence for mailing; such correspondence would be deposited with the U.S. Postal Service on the same day in the business. ordinar course of

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11

() PERSONAL DEPOSIT IN MAIL: By

12
13

placing in sealed envelope(s), which I personally deposited with the U.S. Postal Service. Each such envelope was deposited with the U.S. Postal Service at Los Angeles, Californa, with first class postage thereon fully prepaid.
maintained at the U.S. Postal Service for receipt of

() EXPRESS U.S. MAIL: Each such envelope was deposited in a facility regularly
Express Mail at Los Angeles,
California, with Express Mail postage paid.
( )

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15

16 17
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( )

HAND DELIVERY: I caused to be hand delivered each such envelope to the office of the addressee as stated on the attached service list.
placing in sealed envelope(s) designated by Federal Express FEDERA EXPRESS: By with delivery fees paid or provided for, which I deposited in a facility regularly maintained by Federal Express or delivered to a Federal Express courier, at Los Angeles, Californa.

19

(X)

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21
( )

ELECTRONIC MAIL: By transmitting the document by electronic mail to the electronic mail address as stated on the attached service list.
FAX: By transmitting the document by facsimile transmission. The transmission was reported as complete and without error.
(Federal) I declare that I am employed in the offce of a member of the bar of this Court, at whose direction the service was made. I declare under penalty of perjury that the
foregoing is tre and correct.

22
23

(X)

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25

Date: July 25.2008

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Isl John M. McCoy III John M. McCoy III

12

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1

SEC v. PLUS MONEY. INC.. et al. United States District Court - Southern District of California
Case No. 08-CV-0764 BEN (NLS) (LA-3486)
SERVICE LIST
Joseph N. Casas, Esq.

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3

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5

6

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Casas Law Group, P.C. 2323 Broadway, Suite 202 San Diego, CA 92102
Telephone: (619) 692-3146

Facsimile: (619) 692-3196 Email: ioseph~casaslaw.com
Attorney for Defendant Matthew La Madrid

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11

Robert J. Liskey, Esq. Tyler & Wilson LLP
5455 Wilshire Boulevard, Suite 1925

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13

Los Angeles, CA 90036
Telephone: (323) 655-7180

Facsimile: (323) 655-7122 Email: ril~tyler-Iaw.com
Attorney for Defendant Donald Lopez

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15

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17 18 19

David L. Osias, Esq. Allen Matkins Leck Gamble Mallory & Natsis
501 W. Broadway, 15th Floor

San Diego, CA 92101-3547
Telephone: (619) 233-1155

Facsimile: (619) 233-1158
Email: dosias(tallenmatkins.com

Attorney for Receiver Stephen J. Donell

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