The SEC scored a victory in a Michigan federal court when the court refused to lift an asset freeze so that a private equity manager could pay for its legal defense.
The private equity manager was accused of pilfering public pension funds, and using this money for personal and other business expenses. The SEC sought and obtained an asset freeze as well as a preliminary injunction, with the consent of the private equity manager. However, the private equity manager sought to pay for legal expenses during this time, and the court rejected his attempt. Additionally, the court also rejected the manager’s motion for indemnification or advancement of legal fees pursuant to an agreement with another entity. The court stated that the request was denied because it was premature.
The case, SEC v. Onyx Advisors LLC, is indicative of the difficulty a SEC defendant has in obtaining relief when the SEC has an asset freeze in place. Courts are not electing to upset a freeze until the hearing. Such an ability provides the SEC with a great advantage in these cases.