SEC, other Durante claimants score significant court win
2003-06-19 20:45 ET - Street Wire
Also Street Wire (C-*BCSC) B.C. Securities Commission
by Brent Mudry
In an extremely critical ruling, a Vancouver judge has thrown out a controversial garnishing order he granted a Californian in December securing the entire $18.43-million balance of a frozen offshore Vancouver bank account related to Mafia-linked career felon Ed Durante. (All figures are in U.S. dollars.) Mr. Durante, now in jail in New York for penny stock frauds, largely run through Vancouver brokerage Union Securities, was described by the judge as the head culprit of a group of "rogues, stock swindlers and manipulators."
In a 63-page decision released Thursday in the Supreme Court of British Columbia, Mr. Justice Sherman Hood found that Vancouver lawyer Stephen Antle of Borden Ladner Gervais, representing California client Michael Jason Evans, won the disputed garnishing order after failing to disclose to the court eight key points regarding the frozen bank account, other claimants besides his client, and the details of Mr. Durante's fraudulent behaviour.
In harsh language, Judge Hood noted that a number of cited precedents and other cases "make it clear that the principle of full and fair disclosure is one of our most fundamental principles of justice. Its abuse simply cannot be justified."
The decision is the latest twist in the saga of indicted offshore promoter Terry Neal's Nevis-based Exchange Bank and Trust, which had its account at the main downtown Vancouver branch of Bank of Montreal, largely a money laundering account for Mr. Durante and other market misfits, frozen since April, 2000, by the British Columbia Securities and Exchange Commission, acting on behalf of the United States Securities and Exchange Commission.
The high-stakes decision marks a significant win for lead lawyers Duncan Manson of Scarlett Manson Angus, representing viatical promoter David Svete, who innocently deposited $3-million into the account, and Mark Skwarok of Skwarok and Breivik, representing the SEC, which hopes to seize much of the frozen funds to collect on more than $42.5-million in judgments it won in New York against Mr. Durante, on behalf of his penny stock victims.
A platoon of 13 lawyers appeared before Mr. Hood, including BCSC enforcement director Sasha Angus, James Rowan of Farris Vaughan Wills & Murphy, representing Wolverton Securities, which seeks $320,000 against Mr. Durante, and Jennifer Conkie, representing clients Nancy and Miguel Valenti of California, who innocently deposited $350,000 into the Exchange Bank account.
The speedy judgment comes a week after a three-day rush hearing ended on June 9. Judge Hood had little time to prepare his extensive reasons, as the various legal teams are gearing up for an entitlement hearing set to start Monday in front of Madam Justice Brenda Brown. The heated garnishment challenge was set down for one day in court, but took more than three full days.
Lawyers for Mr. Evans, who initially sued Silicon Valley IPO Network, Mr. Durante and several associates several years ago, portray their client as just a straight-up entrepreneur who would be greatly prejudiced if he has to wait a few more months or a few more years to get his money. Ironically, the only reason Mr. Evans even has a chance for the funds is due to the work of the BCSC and the SEC, as the Vancouver bank account they froze is the only asset of Mr. Durante's that his legal team has ever been able to track down and claim.
"Jason Evans is also an innocent... he is just a regular guy, he is a computer programmer in California," lawyer Mr. Antle told a case management judge in a separate hearing in late May. "He invented a computer program and Durante stole it from him, Durante sued him to prevent him from using it."
The Vancouver lawyer notes Mr. Evans called Mr. Durante's bluff by counterclaiming, leading the fraudster to drop his suit. Mr. Evans then got a quick default judgment in February, 1999, unopposed by anyone. "Mr. Evans is just a regular guy -- an intermittently-employed computer programmer," Mr. Antle told the court. The Vancouver lawyer notes that his client has large legal debts stemming from defending himself against Mr. Durante, and then claiming against the fraudster.
At issue is who can grab the spoils of the frozen Vancouver bank account.
Based on minimal disclosure before him, Judge Hood granted Mr. Evans a garnishing order on Dec. 18, effectively granting the periodically employed software developer first and final dibs on the entire $18.4-million EBT account. Judge Hood granted the uncontested default garnishing order in favour of Mr. Evans, to support an uncontested $36-million default judgment, now valued at $63-million with interest, against Mr. Durante in a California court in February, 1999. Mr. Antle, who neglected to notify SEC lawyer Mr. Skwarok, despite a contested agreement, or any other claimant lawyers, was the only lawyer who appeared before Judge Hood at the December hearing.
Judge Hood noted that in such an ex parte hearing, counsel is generally required and expected to present full disclosure to the judge, not just disclosure of details helpful to his client.
Amongst various cases cited, Judge Hood underlined a portion of a 1999 Ontario court decision on a similar case in which full and fair dislosure was not made in an ex parte application. "A court should not countenance any benefit gained by those who participate in an abuse of its process. Our system of justice heavily depends upon the integrity of the ex parte regime. No one should benefit from a breach of that integrity," states the underlined portion.
Judge Hood notes that Mr. Antle had an obligation to disclose any information that might persuade the judge not to make the garnishing order. "Counsel is not required to only disclose proven facts. Even disputed information should be put before the chambers judge if it might persuade him not to make the order."
Judge Hood notes he granted the garnishing order after an exchange with counsel Mr. Antle, during which he was told, among other things, that the application was unopposed, that the defendants were rogues, that there was a connection between them and the garnishees, who were also rogues, that all of them had simply ignored the proceeding, that Mr. Durante was in a federal prison on securities fraud charges, that Mr. Durante had traded stocks through Union Securities in Vancouver, and that some of his "trading profits" had been transferred into an account, or accounts, at Exchange Bank.
"I observe that the use of the phrase trading profits' might not suggest to a person first hearing it that the funds were the product of fraud of Mr. Durante's fraudulent stock manipulations," notes the judge.
"This exchange with counsel dealt mainly with the question of whether EBT owed any monies to Durante, and why EBT did not respond to the earlier garnishing order; and counsel's suggestion was that a rogue garnishee like EBT 'offshore,' whose directing mind was in prison, might not be able to do anything, or might not care; thus tarring EBT with Durante's fraudulent conduct, which I now understand may not be the case," states Judge Hood.
"I also asked counsel at the end of his submission, as is my practice, whether he had anything more to tell me, and he said 'no.' I observe that the question could have been more expansive i.e., 'is there anything else you wish to tell me which may cause me not to grant the order sought?' However, in the ex parte context, I am satisfied that counsel would appreciate the thrust of what I was asking him."
The judge ruled this was clearly insufficient.
"While Mr. Antle says that there was no duty to disclose anything more than he did, I respectfully disagree. On the facts known to his client there was a clear duty on him to inform the court of the facts and circumstances surrounding the source and nature of the funds, and in particular of the claims of the other claimants to them, so as to enable the court to properly and fairly exercise its equitable discretion."
"Not only was the application equivalent to an ex parte application, Evans was seeking Draconian rights over persons who should have been there to protect their interests, and counsel faced the same strict and inflexible duty of disclosure by which counsel on any ex parte application must be guided. Full and fair disclosure must be voluntarily made by counsel of any information or facts which might persuade the chambers judge to refuse to make the order sought, or in some cases to order the attendance on the motion of other persons whose interests may be affected by the order," states Judge Hood.
The judge ruled that in winning the garnishing order, Mr. Antle knowingly failed to disclose eight material facts.
First, the lawyer neglected to tell the garnishing judge that the source of the funds deposited by Mr. Durante and held by Exchange Bank, making up the bulk of the funds at issue, were asserted to be the product of Mr. Durante's fraudulent stock manipulations, for which he had pleaded guilty to securities fraud on Dec. 7, 2001. Judge Hood notes that at a minimum, this would make Mr. Durante's title to the funds questionable.
Second, Mr. Antle forgot to mention that three other claimants opposed his client's claims to the funds and the nature of their claims to the funds. This included the SEC's claim on behalf of defrauded shareholders.
Third, the judge was never told that Mr. Evans and his lawyers knew about proceedings in the New York District Court pertaining to Mr. Durante's fraudulent stock schemes, especially that by last October they knew the American court had ordered Mr. Durante, his offshore companies and Exchange Bank to disgorge the proceeds of the stock fraud for distribution to defrauded investors, and that the SEC had obtained a default judgment against Mr. Durante.
Fourth, Mr. Antle never told Judge Hood that the funds had been frozen by the BCSC under the Securities Act, and the Court of Appeal for British Columbia had declined to set aside the freeze orders on application by Exchange Bank. The placed into question the effectiveness of a garnishing order absolute and Exchange Bank's obligation to pay out the funds.
Fifth, Mr. Antle neglected to tell Judge Hood that he and other counsel for the other claimants were participating in a case management process before Madam Justice Kirkpatrick in which entitlement to the funds in the Exchange Bank account, and priorities if any, would be determined.
Sixth, the garnishing judge was never informed that Mr. Svete and his offshore company Umbrella Capital, while not parties in the Evans action, had entered an appearance in the action and had otherwise made it known that they wanted to be served with any notice of motion relating to the distribution of funds.
Seventh, Judge Hood was never told that while the garnishing order absolute sought by Mr. Antle was for $63.95-million, Mr. Durante only deposited $19-million into the EBT account. The judge was also not told that was Exchange Bank's position in the appeal court that only $901,000 remained on deposit for Mr. Durante.
Finally, Judge Hood was never informed that the parties had entered into an agreement, originally made between Mr. Antle, representing Mr. Evans, and Mr. Skwarok, representing the SEC, that each would give the other notice of any application with respect to the monies frozen in the EBT account.
Based on this pattern of non-disclosure, Judge Hood overturned his garnishing order, eliminating the massive advantage Mr. Evans had over other claimants.
bmudry@stockwatch.com |
