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Tuesday
Nov212017

Asset Freeze Granted in SEC v. Bar Works Capital

In SEC v. Bar Works Capital, LLC, No. 17-cv-04396-EMC, 2017 BL 370327 (N.D. Cal. Oct. 16, 2017), the Securities and Exchange Commission (“SEC”) sought an asset freeze against Bar Works Capital (“Bar Works”) for allegedly purchasing 615 Sacramento Street, San Francisco, California (“Property”) with fraudulently-obtained funds. The court determined the SEC offered sufficient and proper evidence to support this claim and imposed an asset freeze on the Property.  

The SEC requested preliminary relief in the form of an asset freeze after an enforcement action arose against Capital alleging violations of federal securities laws in the Southern District of New York. The defendants in this security suit, Bar Works, Inc. and 7th Avenue Bar Works, allegedly solicited $4,666,647 from approximately eighty-six investors to convert former bar and restaurants in central city locations into full-service work spaces. The complaint asserted Richard Haddow, Capital’s manager and the owner of the defendants in the securities suit, transferred these funds to a separate account used to purchase the Property, instead of applying the money towards the proposed new venture. The court issued a default judgment against Capital on September 13, 2017, because it failed to timely answer the SEC’s complaint.

A party requesting an asset freeze must show that it may succeed on the merits, it will suffer irreparable harm in the absence of preliminary relief, the balance of equities tips in the party’s favor, and an injunction is in the public interest.

The court determined the SEC presented substantial and uncontroverted evidence establishing the investor funds were used to purchase the Property in Capital’s name because the defendants maintained complete control over the investor’s money from the initial deposit to the purchase of the Property. Second, the court found a potential for irreparable harm in the absence of preliminary relief because the defendants had previously dissipated assets or transferred them beyond the United States’ jurisdictions from accounts involved in this case prior to the commencement of the securities suit. The court determined irreparable harm may also stem from other third-party claimants, seeking to impose liens against the Property. Third, the court decided the equities weighed in favor of granting the asset freeze because investors may not be able to recover moneys wrongfully obtained from them otherwise and Capital failed to respond with reasons why a temporary asset freeze would cause them to suffer harm. Lastly, the court held the SEC’s role as a statutory guardian charged with protecting public interest in security law enforcement supported the imposition of an asset freeze because the purpose of such disgorgement remedies is to deter security law violations.

For the reasons above, the court ordered the asset freeze on the Property.

The primary materials for this case are available on the DU Corporate Governance website.

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