United States District Court, D. Connecticut
RULING ON MOTION FOR MODIFICATION OF TEMPORARY
Bond Arterton, U.S.D.J.
August 12, 2016, Defendant Francisco Illarramendi moved [Doc.
# 1022] for partial modification of the Court's temporary
restraining order requesting release of $100, 000.00, from
the frozen assets "to pay for Counsel of Choice in the
Criminal Matter" and noting that the requested amount
"is subject to increase through future requests
depending on the course of proceedings." (Mot. for
Modification ¶ 30.) Both the SEC ("SEC
Opp'n") [Doc. # 1038] and the Receiver
("Receiver Opp'n") [Doc. # 1039] oppose the
Motion. For the reasons set forth below, the Motion is
January 14, 2011, the SEC moved [Doc. # 2] for entry of a
temporary restraining order and order freezing assets against
all Defendants. Mr. Illarramendi, represented by counsel from
the law firm of Bingham McCutchen LLP and subsequently by
counsel from the law firm of Gleason & Koatz LLP, opposed
[Doc. # 20] the Motion and requested through counsel that,
should the asset freeze order be entered, the Court carve-out
funds for living expenses and attorneys' fees. The Court
denied Mr. Illarramendi's request without prejudice and
informed him that he may renew the motion with more detail
regarding the nature and scope of the expenses and
attorneys' fees. Mr. Illarramendi did not renew this
request for approximately a year. The Court entered the TRO
freezing Mr. Illarramendi's assets on January 28, 2011
[Doc. # 36] and entered the preliminary injunction on
February 3, 2011 [Doc. # 67].
March 7, 2011, a criminal information against Mr.
Illarramendi was unsealed. [Case No. 11-cr-41 (SRU); Doc.
# 3.] Mr. Illarramendi, represented by counsel from
Gleason & Koatz LLP, waived indictment and pleaded guilty
that same day. [Case No. 11-cr-41 (SRU); Docs. ## 4, 9.] As
set forth in the order granting the Receiver's second
motion for contempt sanctions in the civil case [Doc. # 762],
Mr. Illarramendi paid $65, 000 for counsel in the criminal
matter using funds he falsely represented to be a loan from
Rodolfo Carlstein-Reyes when in fact it was a portion of
$235, 000.00 that Mr. Illarramendi had impermissibly
transferred to a real estate investment company controlled by
Mr. Carlstein-Reyes prior to the asset freeze. As such, these
funds should have been subject to the freeze but were instead
used to pay for counsel. The Court found that
Defendant's noncompliance with this Court's orders is
established from bank records evidencing the improper
transfers, and the sworn affidavit from Carlstein-Reyes,
which unambiguously contradicts Defendant's sworn
representation that the $150, 000 was a personal loan.
(Contempt Ruling [Doc. # 762] at 7.)
Illarramendi, again through counsel, renewed his request for
a carve-out for attorneys' fees on September 25, 2011
[Doc. #591], and the Court again denied this motion without
prejudice in a ruling from the bench, again noting that Mr.
Illarramendi provided no detail in his request for $800,
000.00 and that the Court therefore had no basis for
determining its reasonableness.
Illarramendi's instant Motion reflects his belief,
however, that the preliminary injunction's freeze of his
assets impaired his pre-trial Sixth Amendment Rights by
making it impossible for him to afford his counsel of choice
although he was represented by retained counsel during all of
the pre-plea proceedings in his criminal matter. (Mot. for
Modification ¶ 50.)
Illarramendi was sentenced on February 6, 2015 [Case No.
11-cr-41 (SRU); Doc. # 167], which he timely appealed [Case
No. 11-cr-41 (SRU); Doc. # 200.] During the pendency of this
appeal, Judge Underhill ordered restitution [Case No.
11-cr-41 (SRU); Doc. # 198], which Mr. Illarramendi also
appealed [Case No. 11-cr-41 (SRU); Doc. # 200].
Second Circuit's mandate affirming the sentence issued on
May 11, 2016 [Case No. 11-cr-41 (SRU); Doc. # 202], roughly
three months before Defendant filed the instant Motion for a
carve-out to pay for attorneys' fees. With regard to the
appeal of the restitution order, Mr. Illarramendi moved for
appointment of CJA counsel on January 19, 2016, who was
subsequently appointed. CJA counsel then filed the opening
brief in the appeal on July 13, 2016, one month before Mr.
Illarramendi moved for release of attorneys' fees. With
one appeal complete and CJA counsel in the other, Mr.
Illarramendi was not without legal representation during his
criminal proceedings at the time this motion was filed.
district court has authority in a securities fraud case to
grant ancillary relief in the form of orders appointing a
receiver or temporarily freezing assets. See S.E.C. v.
Manor Nursing Centers, Inc., 458 F.2d 1082, 1103, 1105
(2d Cir. 1972); see also S.E.C. v. Unifund SAL, 910
F.2d 1028, 1041 (2d Cir. 1990). The purpose of such relief is
to facilitate enforcement of any disgorgement remedy that
might be ordered in the event a violation is established at
trial. In considering the scope and propriety of such relief,
the court should assess whether it is in the allegedly
defrauded investors' interests. See Manor
Nursing, 458 F.2d at 1105; see also S.E.C. v.
Coates, No. 94 CIV. 5361 (KMW), 1994 WL 455558, at *1
(S.D.N.Y. Aug. 23, 1994) (denying defendant's motion for
release of funds for living expenses and attorneys'
fees). In cases where the receivership entities are ongoing
concerns that require cash to operate, the court must balance
the necessity to freeze assets to prevent dissipation against
the possible deleterious effects of such a freeze. Manor
Nursing, 458 F.2d at 1086.
advances one core argument in his motion for release of
frozen assets to pay attorneys' fees in his criminal
matter, which argument also forms the core of his pending
habeas petition: Mr. Illarramendi claims that his criminal
conviction is "vitiated" by the Supreme Court's
decision in Luis v. United States, 578 U.S.__, 136
S.Ct. 1083 (2016), in which a plurality of the Supreme Court
held that a criminal defendant "has a Sixth Amendment
right to use her own ...