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United States Securities and Exchange Commission v. Apostelos

United States District Court, S.D. Ohio, Western Division, Dayton

August 21, 2019

WILLIAM M. APOSTELOS, et al., Defendants.



         This case is before the Court on the Motion for Summary Judgment (Doc. 52) (the “Motion”) filed by Plaintiff United States Securities and Exchange Commission (“SEC”), pursuant to Fed.R.Civ.P. 56. Specifically, the SEC moves for summary judgment as to Counts I, II, V, VI, VII, VIII, and IX asserted against Defendant William M. Apostelos (“Apostelos”) in the Complaint (Doc. 1). The SEC's overarching argument is that it is entitled to summary judgment based on the preclusive effect of the judgment entered by this Court against Apostelos in a parallel criminal case, United States v. Apostelos, No. 3:15-cr-00148 (S.D. Ohio) (the “Criminal Action”) and undisputed evidence of Apostelos' fraud. Apostelos, who is a currently incarcerated pro se defendant, filed a memorandum in opposition to the Motion (Doc. 61) (the “Opposition”), and the SEC filed a reply memorandum in support of the Motion (Doc. 62) (the “Reply”). The Motion is fully briefed and ripe for review. (Docs. 52, 61, 62.) For the reasons discussed below, the Court GRANTS the Motion, IMPOSES RELIEF as set forth below, and TERMINATES this case.

         I. BACKGROUND

         On October 29, 2015, the SEC filed its Complaint in this civil action against Defendants Apostelos, WMA Enterprises, LLC (“WMA”), Midwest Green Resources, LLC (“Midwest Green”), and OVO Wealth Management, LLC (“OVO”) (collectively, “Defendants”), and against Relief Defendants Connie Apostelos (“Connie”), Apostelos Enterprises, Inc. (“Apostelos Enterprises”), Coleman Capital, Inc. (“Coleman Capital”), and Silver Bridle Racing, LLC (“Silver Bridle”) (collectively, “Relief Defendants”). (Doc. 1.)

         A. Claims Brought Against Apostelos by the SEC

         In the Complaint, the SEC alleges that Apostelos violated various securities laws by operating a fraudulent scheme that involved, among other things, making numerous false and misleading statements to hundreds of investors, as well as selling unregistered securities and acting as an unregistered broker. The specific claims brought against Apostelos are the following:

Count I - Violations of Section 10(b) of the Exchange Act (15 U.S.C. § 78j(b)) and Rule 10b-5 Thereunder (17 C.F.R. § 240.10b-5)
Count II - Violations of Section 17(a) of the Securities Act (15 U.S.C. § 77q(a))
Count V - Violations of Sections 206(1), 206(2), and 206(4) of the Advisers Act (15 U.S.C. §§ 80b-6(1), 80b-6(2), and 80b-6(4)) and Rule 206(4)-8 Thereunder (17 C.F.R. § 275.206(4)-8)
Count VI - Violations of Sections 5(a) and 5(c) of the Securities Act (15 U.S.C. §§ 77e(a) and 77e(c))
Count VII - Violations of Section 15(a)(1) of the Exchange Act (15 U.S.C. § 78o(a)(1))
Count VIII - Aiding and Abetting Liability Under Section 15(b) of the Securities Act and Section 20(e) of the Exchange Act (15 U.S.C. § 77o(b) and 78t(e))
Count IX - Control Person Liability Under Section 20(a) of the Exchange Act (15 U.S.C. § 78t(a))

(Doc. 1.)

         B. Apostelos' Guilty Plea and Conviction on Certain Criminal Charges

         On October 29, 2015 (the same day that the SEC filed the Complaint), the United States Attorney for the Southern District of Ohio filed an indictment against Apostelos. (Criminal Action Doc. 6.) The indictment alleges, among other things, that Apostelos “knowingly and intentionally conspired to devise, execute, and participate in a scheme to defraud investors and to obtain money and property owned by and under the custody and control of investors, by means of materially false and fraudulent pretenses, representations, and promises, and the non-disclosure and concealment of material facts ….” (Id. at PAGEID # 42.) The criminal indictment is predicated on much of the same conduct that forms the basis of the SEC's Complaint in this civil case. (Compare Criminal Action Doc. 6 to Doc. 1.)

         On December 15, 2016, Apostelos signed a Plea Agreement, [1] pursuant to which he pleaded guilty to one count of conspiracy to commit wire and mail fraud in violation of 18 U.S.C. § 1349 (Criminal Action Count One) and one count of conversion of funds from an employee benefits plan in violation of 18 U.S.C. § 664 (Criminal Action Count Twenty-Four). (Criminal Action Doc. 58.) Exhibit A to the Plea Agreement is a “Statement of Facts for Williams Apostelos, ” which Apostelos signed as being “AGREED AND ACCEPTED” and which states the following:

Between 2010 and October 2014, in the Southern District of Ohio, defendant William Apostelos, with the intentional help of other people, knowingly ran a fraudulent investment scheme that caused millions of dollars in losses to certain of its investors. Throughout this time, Mr. Apostelos oversaw the operations of WMA Enterprises (‘WMA') and Midwest Green Resources (‘Midwest Green') - purported investment companies located in the Dayton, Ohio metropolitan area.
Using these companies, Mr. Apostelos convinced hundreds of individuals from around the country to place millions of dollars in assets under his control for the purpose of investment. In doing so, Mr. Apostelos often intentionally misrepresented the manner in which he intended to use his clients' money. For instance, he falsely assured multiple clients that he planned to invest their money in, among other things: the stock market; precious metals such as gold and silver; as well as real estate developments in Kentucky and Nevada. Mr. Apostelos further falsely agreed to provide his clients with periodic statements or information that accurately reflected the status of their investments.
Based on these intentional misstatements and misrepresentations, hundreds of individuals transferred millions of dollars - often through interstate wires - to Mr. Apostelos with the understanding that he would make bona fide investments with their money. For these same reasons, at least one entity transferred management of its employee pension benefit plan - identified herein by the acronym B.T.F., Inc., 401K Plan - to Mr. Apostelos.
Rather than investing as promised the bulk of this money that he received, Mr. Apostelos with the intentional help of other individuals knowingly diverted his clients' money - including the assets of the B.T.F., Inc., 401K Plan - for improper and unauthorized uses. For example, Mr. Apostelos knowingly and improperly used client funds intended for investment in the stock market to repay earlier investors in his scheme. Similarly, without authorization, he purposefully and fraudulently diverted portions of investors' money to: pay his own employees; to fund the horse racing business of his wife; and to purchase real property for himself and his family such as 35 Commercial Way, Springboro, Ohio.
To prevent detection of his intentional misuse of investors' funds - including the assets of the B.T.F., Inc., 401K Plan - Mr. Apostelos and other individuals worked together to provide false information to clients of WMA and Midwest Green. On occasion, Mr. Apostelos directed his employees to prepare and to mail statements that fraudulently described the purported positive growth of investors' funds. Additionally, when certain clients attempted to withdraw their investments from WMA and Midwest Green, Mr. Apostelos often directed his employees to provide these investors with intentionally inaccurate reasons for his inability to repay them, such as false claims that the companies' bank accounts had been hacked.
Based on this fraudulent conduct, Mr. Apostelos and others caused many of the investors to lose funds collectively totaling in the millions of dollars.

(Id. at PAGEID # 281-82.)

         This Court accepted Apostelos' guilty plea on February 10, 2017. (Criminal Action Doc. 59.) On June 30, 2017, this Court sentenced him to 180 months in prison and ordered him to pay restitution in the amount of $32, 767, 578.72 and forfeit assets traceable to the offenses for which he was convicted. (Criminal Action Doc. 81.)

         C. Investor Funds and Lack of Registration by Apostelos, WMA, and Midwest Green

         Attached as an exhibit to the SEC's Motion is a Declaration of Luz M. Aguilar (“Aguilar Decl.”). (Doc. 52-2.) Mr. Aguilar is a Senior Accountant with the SEC who participated in the SEC's investigation regarding the offer and sale of investments by Apostelos and his entities (WMA, Midwest Green, and OVO). (Id.) Among other things, Mr. Aguilar reviewed numerous documents and analyzed records that show the flow of funds through accounts held by Apostelos and his entities at various financial institutions. (See Doc. 52-2, 52-3.)

         In his Declaration, Mr. Aguilar states that, based on his review and analysis, “[f]unds from investors were deposited and pooled in accounts in the name of Midwest Green and WMA, which were controlled by Apostelos. Apostelos used funds raised from investors to make payments to previous investors, fund his personal expenses, and make payments to the Relief Defendants.” (Doc. 52-2 at PAGEID # 351.) Mr. Aguilar states that “[f]rom at least November 2010 through at least October 2014, Apostelos used accounts he controlled to deposit approximately $60.4 million from investors. From at least November 2010 through at least November 2014, investors received approximately $49.2 million from accounts controlled by Apostelos which held investor funds. Apostelos used his entities to raise a net amount from investors of approximately $11.2 million ($60.4 million raised from investors less $49.2 million paid to investors). (Id. at PAGEID # 351-52.) Mr. Aguilar calculated prejudgment interest on the approximately $11.2 million net amount Apostelos raised from investors to be $587, 371.04. (Id. at PAGEID # 352; see also Doc. 52-3 at PAGEID # 357-75.) He attaches documentation to support his calculations. (Id.)

         Mr. Aguilar also states in his Declaration that he conducted a search of the BrokerCheck database maintained by the Financial Industry Regulatory Authority (“FINRA”), and that the search did not return any records indicating that Apostelos was registered as a broker or dealer (or associated with a registered broker or dealer) or that WMA, Midwest Green, or OVO were registered as brokers or dealers. (Doc. 52-2 at PAGEID # 354; see also Doc. 52-3 at PAGEID # 404-07 (search results).) Additionally, the SEC attached to its Motion two Attestations certifying that searches of records and files do not disclose that any registration statements have been received by the SEC in the name of WMA or Midwest Green. (Docs. 52-4, 52-5.)

         Apostelos does not refute, or even attempt to refute, any of the statements in Mr. Aguilar's Declaration, and he did not submit any declaration or affidavit in support of his Opposition.

         II. LEGAL STANDARD ...

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