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United States Securities and Exchange Commission v. Ahmed

United States District Court, D. Connecticut

July 18, 2017

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
IFTIKAR AHMED, Defendant, and IFTIKAR ALI AHMED SOLE PROP; I-CUBED DOMAINS, LLC; SHALINI AHMED; SHALINI AHMED 2014 GRANTOR RETAINED ANNUNITY TRUST; DIYA HOLDINGS LLC; DIYA REAL HOLDINGS, LLC; I.I. 1, a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents; I.I. 2, a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents; and I.I. 3, a minor child, by and through his next friends IFTIKAR and SHALINI AHMED, his parents, Relief Defendants.

          ORDER DENYING RELIEF DEFENDANTS' MOTION TO MODIFY THE ASSET FREEZE TO RELEASE RENTAL PROCEEDS FROM RELIEF DEFENDANT'S APARTMENT AND TO PERMIT SALE OF GOLD ASSETS FOR ATTORNEYS' FEES

          Janet Bond Arterton, U.S.D.J.

         In this civil enforcement action brought by the Securities and Exchange Commission (the "SEC"), Relief Defendants Shalini Ahmed, her three minor children, I.I. 1, I.I. 2 and I.I. 3, Shalini Ahmed 2014 Grantor Retained Annuity Trust, DIYA Holdings LLC, DIYA Real Holdings LLC, and I-Cubed Domains LLC (together, the "Relief Defendants") move [Doc. # 442] the Court to modify its August 12, 2015, [Dkt. No. 113] Order freezing certain assets to (1) release $250, 000 claimed as rental proceeds generated from Relief Defendant DIYA Holdings LLC's apartment (the "Rental Proceeds"); "and (2) permit the sale of gold assets held in the safety deposit box in the name of Shalini Ahmed at Bank of America (the "Gold Bars"), for payment of attorneys' fees and replenishment of living expenses." (Relief Def.'s Mot. to Modify the Asset Freeze ("R. Def.'s Mot to Modify") [Doc. # 442] at 1-2.) The SEC opposes this Motion. (See PL's Opp'n [Doc. # 465].) The parties' familiarity with the underlying facts of the case is presumed. For the reasons that follow, Relief Defendants' Motion is denied.

         I. Discussion

         In its ruling in this case, the Second Circuit noted that "Relief Defendants do not allege that the referenced assets ... properly belong to Relief Defendants, much less that they do not include proceeds of Iftikar's fraud." Sec. & Exch. Comm'n v. I-Cubed Domains, LLC, 664 F.App'x 53, 57 (2d Cir. 2016). The panel then instructed that

Insofar as Relief Defendants are able to identify any improperly frozen assets-including those mentioned in their reply brief-they can apply to the district court to release them in the first instance. The SEC would then be required to carry its burden of demonstrating that any such identified assets are either ill-gotten gains to which Relief Defendants do not have a legitimate claim or that Iftikar in fact owns the assets in question.

Id.

         Accordingly, Relief Defendants must first allege that the assets properly belong to them, upon which the SEC carries the burden of establishing the assets are either ill-gotten gains or owned by Iftikar. Relief Defendants maintain that the SEC has not carried this burden with respect to the Rental Proceeds or Gold Bars and therefore that these assets should be released from the freeze.

         A. Rental Proceeds

         Relief Defendants seek access to $250, 000 in claimed proceeds derived from renting Unit 12A which, before this Court's asset freeze order, Ms. Ahmed transferred from the DIYA Holdings account at Bank of America and deposited into her account at Fidelity, ending x754O. Relief Defendants assert that "[t]he source of these funds was lease payments from DIYA Holdings' third party tenant" and Ms. Ahmed, testifying as DIYA Holdings' 30(b)(6) representative, explained that she made this transfer because "she was the 99% owner of DIYA Holdings LLC, she had performed services for DIYA Holdings, and she wished to invest the funds, and thus deposited them to a brokerage account." (R. Def.'s Mot. to Modify at 6-7.)

         However, Relief Defendants apparently ignore that this Court has already found that Ms. Ahmed is not entitled to proceeds of Unit 12A because she was only a nominal owner of the condominium:

Mrs. Ahmed next contends that she is the manager and beneficial owner of Relief Defendants DIYA Holdings LLC, an entity that owns a condominium in New York City, 530 Park Avenue, Unit 12A, which generates significant rental income, and DIYA Real Holdings LLC (Unit 12F in the same building), which could generate significant rental income; and that she is entitled to the rental income from both properties. (Relief Defs.' Prehr'g Br. at 13.) The SEC, however, has shown a likelihood of success on its claim that these properties are actually owned by Mr. Ahmed and were purchased with proceeds of fraud. . . .Therefore, the record supports the SEC's contention that Mr. Ahmed and not Mrs. Ahmed is in reality the owner of these two properties.

(Ruling and Order Granting Preliminary Injunction [Doc. # 113] at 10-11.) The Second Circuit subsequently affirmed this Court's Asset Freeze Order recognizing that the record supported (and that Relief Defendants did not contest) "that the funds used to purchase each apartment derived from Iftikar's alleged fraudulent dealings" and that "DIYA, DIYA Real, and Shalini did not provide any goods or services in exchange for the apartments" which was "sufficient to show the Relief Defendants' likely receipt of ill-gotten assets to which they had no legitimate claim ..." I-Cubed Domains, LLC, et al, 2016 WL 6561484 at *2.[1]

         Here, Relief Defendants put forth the same argument - that Ms. Ahmed is entitled to the asset because "she had performed services for DIYA Holdings" (Motion at 6-7) - that the Second Circuit explicitly rejected in holding that her "involvement in the management of the properties after they were acquired is not relevant" to determining whether she had a legitimate claim to the assets. I- Cubed Domains, LLC, et al, 2016 WL 6561484 at *2. The Court's subsequent decision, using its equitable powers, to release rental proceeds for the limited purpose of payment of Relief Defendants' reasonable attorneys' fees did not modify its determination that the two properties and income they produce belong to Mr. Ahmed. Therefore, Relief Defendants are not entitled to the $250, 000 Rental Proceeds derived from those properties.

         B. ...


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