Starting from the Disco year of 1976 and running through 1982, the Securities and Exchange Commission alleged that James L. Douglas a/k/a James L. Cooper had offered and sold over $7.5 million of purported oil and gas program interests in at least 45 limited and general partnerships to over 300 investors. Allegedly, Douglas
- commingled the raised funds;
- overcharged for drilling wells;
- inflated profit projections;
- failed to disclose the interests of persons unrelated to the partnership in the partnershipsí leaseholds; and
- failed to disclose the extent of compensation he was to receive.
Accordingly, way, way back on January 18, 1982, the SEC filed a Complaint in the U.S. District Court for the Northern District of Ohio, seeking to enjoin Douglas from violations of the registration and antifraud provisions of the securities laws. On that same day, the Court entered an order of permanent injunction against Douglas (to which he had consented without admitting or denying the allegations in the Complaint). Subsequently, on August 26, 1983, the Court ordered Douglas to disgorge $200,000 within three years. SEC v. James L. Douglas, aka James L. Cooper (NDOH, Civil File No. C82-29; SEC Litigation Release 9578, February 8, 1982).
Day Late, Dollar Short
Court orders only go so far. In fact, Douglas only paid $121,975.29 of the $200,000 judgment. At that point in the payment schedule, around 1986, Douglasís lawyer informed the Court that his client lacked the ability to pay the remaining $78,024.71 plus post-judgment interest.
Oh, and one other thing, Douglasí lawyer informed the Court that his client may have moved to Scotland. As in no longer in the jurisdiction. As in out of town and out of the country. As in good luck getting the balance due plus interest.
Not one to take a thumbing of the nose quietly, on July 8, 1988, the SEC filed a motion for contempt against Douglas, which the Court granted on August 8, 1988. And taking things a step further, the Court issued a warrant for his arrest.
You know, a funny things about warrants for the arrest of someone whose whereabouts are unknown. The arrest warrant was never executed because the U.S. Marshals could not locate Douglas.
Twist of Fate
In March 2010, a Florida state jury awarded $2.5 million to the Estate of Charlotte M. Douglas, who was Douglasí wife. Previously, Douglas filed a lawsuit on behalf of his deceased wifeís estate against several tobacco companies and, go figure, Douglas was his wifeís sole beneficiary. So, okay, that verdict is on appeal but so what Ė itís still one hell of a twist, right?
Compounding The Problem
Now, lemme remind ya of somethiní.
Way back in 1986 when Mr. Douglas stopped paying the Court ordered restitution and supposedly fled to Scotland, he left a balance due and owing of $78,024.71 plus post-judgment interest. Upon learning of the jury verdict in his wifeís case in January 2011, the SEC sent Douglas a letter demanding that he pay the remaining amount of the judgment together with interest, to which Defendant responded, for the first time, that he had already paid the judgment in full. A bit later, Douglas sort of took it all back and conceded that he still owed on the judgment but now pleaded poverty.
Okay, sit down. You gotta read this plot change!
Javert On Duty
On January 23, 2012, doing its best imitation of Inspector Javert and after learning that Douglas had returned to the U.S., the SEC filed a Motion for a Rule to Show Cause and for an Order of Civil Contempt, requesting that the Court hold Douglas in contempt for a second time. Following four days of evidentiary hearings, on August 20, 2012, Douglas was once again found in civil contempt for failure to pay in full the disgorgement judgment entered in 1983.
In dismissing Douglasí claims of poverty, the Court noted that:
Without a doubt, Defendant has more money than he claims, and while neither side is able to put an exact dollar figure on how much he is worth, it is clear he has some present ability to pay. The evidence in this case paints a picture of a persistent pattern of reporting whatever amount of income was necessary to meet Defendantís immediate goal ó i.e., telling the IRS he makes $2,000 a year, while reporting income in excess of $200,000 to banks (Tr. Vol. 5 at 107). All this, however, is beside the point because even if Defendant is unable to pay the entire disgorgement amount today, the SEC has satisfied this Court that Defendantís inability to pay is self-created. . .
. . .
The evidence in this case leads directly to the conclusion that Defendant had plenty of cash and, instead of paying the agreed judgment, went on to live a life of grandeur. Simply put, it is no surprise Defendant is now short on cash, but that is his fault, and his alone. . . Purchasing luxury vehicles, expensive paintings, furnishings, cars and real estate cannot be light on oneís wallet. Nor can his reckless spending be considered, by any stretch of the imagination, a good faith effort to comply with this Courtís Disgorgement Order. . . Moreover, divesting oneself of assets that would otherwise have been available to satisfy a disgorgement order has routinely been condemned by the courts. . . This is precisely what Defendant has been doing for nearly thirty years. . .
The Court ordered Douglas to pay post-judgment interest at the statutory rate of 10.74% from the date of the entry of the 1983 judgment. In summing up his ruling and rationale, Judge Zouhary stated that:
Benjamin Franklin wrote, ďthe second vice is lying, the first is running in debt.Ē Unfortunately for Defendant, he is guilty of both. Defendant agreed to pay $200,000 nearly three decades ago. Instead of fulfilling his obligations to the SEC, he refused to pay and absconded to Europe, despite facing an order from this Court. Moreover, the evidence does not support Defendantís assertion that he ďclearly, plainly and unmistakablyĒ is unable to pay.
Defendantís lavish lifestyle apparently is over, but he has dodged his legal debt long enough, and it is high time for him to pay what he owes. The SECís Motion (Doc. 2) is granted.
At the end of the hearing, defense counsel requested that this Court, in its equitable powers, modify the applicable interest rate or apply a ďblendedĒ rate to reduce the amount owed. The statutory interest rate of 10.74% applies from the ďdate of the entry of the judgment.Ē 28 U.S.C. ß 1961. That rate may seem high by todayís standards, but it is properly calculated. . .Defendant is therefore responsible for the past due principal plus interest. And if he finds the amount due unreasonable, it is the result of his own misconduct for avoiding payment for so long. Accordingly, Defendantís request to modify the interest rate is denied.
You Got A Calculator?
There is, for some, a delicious twist to this story. At the time of the 2012 hearing, Douglasí post-judgment interest on the unpaid $78,024.71 balance from 1986 was $1,790,730.22, and thatís been growing ever since!
Now as for me, well, hey, I know that Iím a skeptic ó worse, Iím a card carrying curmudgeon. I donít believe nuthiní from nobody. On the other hand, whoa, some of you folks have evolved way beyond my puny state of doubt. In response to my assertion that Douglasí $78,024.71 balanced mushroomed to nearly $1.8 million with some 25 years of interest, you said I was ó well, Iíll clean up some of your assertions: Letís just say you thought that my math was wrong.
For starters, wasnít my math. Itís what the Court said.
Be that as it may. Look at the chart below for some guidance. Iím figuring that Douglas owed the $78,024.71 from 1982 and have compounded the interest from that date. The balance due is close enough to what the Court suggested.
In any event, I hope that you enjoyed the stroll down memory lane. To a time when fraud was fraud and $7.5 million was a hefty amount. A time way before high frequency trading, JP Morgan whales, Knight Capital code failures, Facebook IPO crashes, NASDAQ market problems, and when Smith Barney was in its heyday. Alas.
|Year||Balance||10.74% Interest||Net Due|