Securities and Exchange Commission v. Harrison Schumacher et al, No. 2:2015cv06388 - Document 78 (C.D. Cal. 2017)

Court Description: FINAL JUDGMENT AND PERMANENT INJUNCTION AS TO DEFENDANTS HARRISON SCHUMACHER, QUANECO, LLC, QUANTUM ENERGY, LLC; AND RELIEF DEFENDANTS QUANECO ENERGY HOLDINGS, LLC, FAT CHANCE OIL & GAS, LLC, AND ANV, LLC 77 by Judge Dean D. Pregerson: Defendants permanently restrained and enjoined from violating Exchange Act (SEE DOCUMENT FOR SPECIFICS). Schumacher, Fat Chance, and ANV are jointly and severally liable for disgorgement of $244,000, representing profits gained as a result of the conduct a lleged in the Complaint, together with prejudgment interest thereon in the amount of $8,457.86, for a total of $252,457.86. Quantum, Quaneco, and QEH are jointly and severally liable for disgorgement of $12,470,272.00, representing p rofits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $474,286.20, for a total of $12,944,558.20. (SEE DOCUMENT FOR OTHER DETAILED SPECIFIC AS TO INSTRUCTIONS, DEADLINES AND OTHER REQUIREMENTS). (MD JS-6, Case Terminated). (lc)FC

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Securities and Exchange Commission v. Harrison Schumacher et al Doc. 78 1 2 3 JS-6 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 WESTERN DIVISION 11 12 13 SECURITIES AND EXCHANGE COMMISSION, Plaintiff, 14 15 16 17 18 19 20 21 Case No. 2:15-6388-DDP (RAOx) FINAL JUDGMENT AS TO DEFENDANTS HARRISON SCHUMACHER, QUANECO, LLC, QUANTUM ENERGY, LLC; AND RELIEF DEFENDANTS QUANECO ENERGY HOLDINGS, LLC, FAT CHANCE OIL & GAS, LLC, AND ANV, LLC vs. HARRISON SCHUMACHER; PAUL MYSYK; QUANECO, LLC; and QUANTUM ENERGY, LLC, Defendants, and QUANECO ENERGY HOLDINGS, LLC; FAT CHANCE OIL & GAS, LLC; and ANV, LLC, and TARA SCHUMACHER, Relief Defendants. 22 23 24 25 26 27 28 1 Dockets.Justia.com 1 The Securities and Exchange Commission (“SEC” or “Commission”) having 2 filed a Complaint, and Defendants Harrison Schumacher (“Schumacher”), Quaneco, 3 LLC (“Quaneco”), and Quantum Energy, LLC (“Quantum”) (collectively, 4 “Defendants”); and Relief Defendants Quaneco Energy Holdings, LLC (“QEH”), Fat 5 Chance Oil & Gas, LLC (“Fat Chance”), and ANV, LLC (“ANV”) (collectively, 6 “Relief Defendants”) having entered a general appearance; consented to the Court’s 7 jurisdiction over Defendants and Relief Defendants and the subject matter of this 8 action; consented to entry of this Final Judgment; waived findings of fact and 9 conclusions of law; and waived any right to appeal from this Final Judgment; and 10 Defendants having admitted to the facts set forth in Annex A to the Consents of 11 Defendants Schumacher, Quaneco, and Quantum, and the Consent of Defendants 12 Schumacher, Quantum, and Quaneco and Annex A and B attached thereto, and the 13 Consents of Relief Defendants QEH, Fat Chance, and ANV being hereby 14 incorporated by reference with the same force and effect as if fully set forth herein. I. 15 16 IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendants 17 are permanently restrained and enjoined from violating, directly or indirectly, Section 18 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. § 19 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using 20 any means or instrumentality of interstate commerce, or of the mails, or of any 21 facility of any national securities exchange, in connection with the purchase or sale of 22 any security: 23 (a) to employ any device, scheme, or artifice to defraud; 24 (b) to make any untrue statement of a material fact or to omit to state a 25 material fact necessary in order to make the statements made, in the light of the 26 circumstances under which they were made, not misleading; or 27 (c) 28 would to engage in any act, practice, or course of business which operates or operate as a fraud or deceit upon any person. 2 1 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as 2 provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also 3 binds the following who receive actual notice of this Final Judgment by personal 4 service or otherwise: (a) Defendants’ officers, agents, servants, employees, and 5 attorneys; and (b) other persons in active concert or participation with Defendants or 6 with anyone described in (a). II. 7 8 IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that 9 Defendants are permanently restrained and enjoined from violating Section 17(a) of 10 the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)] in the offer or 11 sale of any security by the use of any means or instruments of transportation or 12 communication in interstate commerce or by use of the mails, directly or indirectly: 13 (a) to employ any device, scheme, or artifice to defraud; 14 (b) to obtain money or property by means of any untrue statement of a 15 material fact or any omission of a material fact necessary in order to make the 16 statements made, in light of the circumstances under which they were made, 17 not misleading; or 18 (c) 19 to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. 20 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as 21 provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also 22 binds the following who receive actual notice of this Final Judgment by personal 23 service or otherwise: (a) Defendants’ officers, agents, servants, employees, and 24 attorneys; and (b) other persons in active concert or participation with Defendants or 25 with anyone described in (a). 26 27 28 3 III. 1 2 IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that 3 Defendants are permanently restrained and enjoined from violating Section 5 of the 4 Securities Act [15 U.S.C. § 77e] by, directly or indirectly, in the absence of any 5 applicable exemption: 6 (a) Unless a registration statement is in effect as to a security, making use of 7 any means or instruments of transportation or communication in 8 interstate commerce or of the mails to sell such security through the use 9 or medium of any prospectus or otherwise; 10 (b) Unless a registration statement is in effect as to a security, carrying or 11 causing to be carried through the mails or in interstate commerce, by any 12 means or instruments of transportation, any such security for the purpose 13 of sale or for delivery after sale; or 14 (c) Making use of any means or instruments of transportation or 15 communication in interstate commerce or of the mails to offer to sell or 16 offer to buy through the use or medium of any prospectus or otherwise 17 any security, unless a registration statement has been filed with the 18 Commission as to such security, or while the registration statement is the 19 subject of a refusal order or stop order or (prior to the effective date of 20 the registration statement) any public proceeding or examination under 21 Section 8 of the Securities Act [15 U.S.C. § 77h]. 22 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as 23 provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also 24 binds the following who receive actual notice of this Final Judgment by personal 25 service or otherwise: (a) Defendants’ officers, agents, servants, employees, and 26 attorneys; and (b) other persons in active concert or participation with Defendants or 27 with anyone described in (a). 28 4 IV. 1 2 IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that 3 Schumacher is permanently restrained and enjoined from violating Section 15(a) of 4 the Exchange Act [15 U.S.C. § 78o(a)] by, directly or indirectly, made use of the 5 mails or means or instrumentalities of interstate commerce to effect transactions in, or 6 to induce or attempt to induce, the purchase or sale of securities, without being 7 registered as a broker or dealer, or being associated with a registered broker or dealer. 8 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as 9 provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also 10 binds the following who receive actual notice of this Final Judgment by personal 11 service or otherwise: (a) Schumacher’s officers, agents, servants, employees, and 12 attorneys; and (b) other persons in active concert or participation with Schumacher or 13 with anyone described in (a). 14 15 V. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, pursuant 16 to Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)] and Section 20(e) of 17 the Securities Act [15 U.S.C. § 77t(e)], Schumacher is prohibited from acting as an 18 officer or director of any issuer that has a class of securities registered pursuant to 19 Section 12 of the Exchange Act [15 U.S.C. § 78l] or that is required to file reports 20 pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)]. 21 22 VI. IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that 23 Schumacher is permanently barred from participating in an offering of penny stock, 24 including engaging in activities with a broker, dealer, or issuer for purposes of 25 issuing, trading, or inducing or attempting to induce the purchase or sale of any penny 26 stock. A penny stock is any equity security that has a price of less than five dollars, 27 except as provided in Rule 3a51-1 under the Exchange Act [17 C.F.R. 240.3a51-1]. 28 5 VII. 1 2 IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that 3 Schumacher is prohibited from directly or indirectly, including, but not limited to, 4 through any entity owned or controlled by Schumacher, participating in the issuance, 5 purchase, offer, or sale of any security, provided, however, that Schumacher is not 6 prohibited from purchasing or selling securities listed on a national securities 7 exchange for his own personal accounts. 8 VIII. 9 IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that 10 Schumacher, Fat Chance, and ANV are jointly and severally liable for disgorgement 11 of $244,000, representing profits gained as a result of the conduct alleged in the 12 Complaint, together with prejudgment interest thereon in the amount of $8,457.86, 13 for a total of $252,457.86. In addition, Schumacher is liable for a civil penalty in the 14 amount of $310,000.00 pursuant to Section 21(d) of the Exchange Act [15 U.S.C. § 15 78u(d)] and Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)]. Schumacher, 16 Fat Chance, and ANV shall satisfy their respective obligations by paying the 17 Securities and Exchange Commission (including, but not limited to, the transfer of all 18 funds held in accounts owned or controlled by Schumacher, Fat Chance, and ANV 19 with Wells Fargo Bank, N.A.) within 364 days after entry of this Final Judgment. 20 21 IX. IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that 22 Quantum, Quaneco, and QEH are jointly and severally liable for disgorgement of 23 $12,470,272.00, representing profits gained as a result of the conduct alleged in the 24 Complaint, together with prejudgment interest thereon in the amount of $474,286.20, 25 for a total of $12,944,558.20, but that this amount shall be deemed satisfied upon (1) 26 the transfer of any and all of Quantum’s, Quaneco’s and QEH’s funds (including, but 27 not limited to, funds in accounts owned or controlled by Quantum, Quaneco, and 28 QEH with Wells Fargo Bank, N.A.) to the Court for potential distribution; and (2) the 6 1 execution of documents that convey all of Quantum’s and QEH’s other assets, 2 whether real or personal, choate or inchoate, to Quaneco. X. 3 4 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, within 5 seven days of the entry of this Final Judgment, Schumacher will execute a document 6 suitable to the SEC to convey to the SEC his interest in the art work identified in 7 Annex B to the Consent of Harrison Schumacher (the “Art Work”). The proceeds of 8 the sale of the Art Work will be applied dollar-for-dollar to satisfy Schumacher’s 9 obligations pursuant to Paragraph VIII of this Final Judgment. XI. 10 11 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that 12 Schumacher’s Consent is incorporated herein with the same force and effect as if 13 fully set forth herein, and that Schumacher shall comply with all of the undertakings 14 and agreements set forth therein, including, but not limited to, the undertakings to: 15 (a) Within fourteen days of the entry of this Final Judgment, divest 16 himself of and transfer to Quaneco any ownership interest he has or claims to have in 17 Quantum, Quaneco, the Relief Defendants, Quaneco VI, LP, Big Sky Energy, LLC, 18 Powder River Gas, LLC, Quest Operating LLC, and BHJ Gathering, LLC, and any 19 related entities, joint ventures, or partnerships (collectively, the “Quantum Entities”) 20 including, but not limited to, any ownership interest in bank accounts, mineral leases, 21 office equipment, and any other property, real or personal, whether choate or 22 inchoate, of the Quantum Entities; 23 (b) Resign any position he holds as President, Manager, or Managing 24 Member of each of the Quantum Entities within fourteen days of the Final Judgment 25 in this matter; and 26 27 (c) Execute all necessary documents to documents to cancel any and all of his interest in the Quantum Entities and, as necessary, execute all documents 28 7 1 necessary effectuate the transfer of such ownership interest to Quaneco as determined 2 by the Securities and Exchange Commission. 3 XII. 4 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, for 5 purposes of exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 6 11 U.S.C. §523, the allegations in the complaint are true and admitted by Defendants 7 and Relief Defendants, and further, any debt for disgorgement, prejudgment interest, 8 civil penalty or other amounts due by Defendants and Relief Defendants under this 9 Final Judgment or any other judgment, order, consent order, decree or settlement 10 agreement entered in connection with this proceeding, is a debt for the violation by 11 Defendants and Relief Defendants of the federal securities laws or any regulation or 12 order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy 13 Code, 11 U.S.C. §523(a)(19). 14 XIII. 15 This Court hereby orders that the Court-ordered asset freeze pursuant to 16 Paragraph VII of this Court’s December 8, 2015 Preliminary Injunction (DE 45) is 17 hereby modified to permit Defendants and Relief Defendants to transfer assets, 18 including the Art work and bank accounts held at Wells Fargo, N.A., so that such 19 assets may be applied to satisfy this Final Judgment. Upon satisfaction of the 20 monetary components set forth in Section IX above, the asset freeze shall be vacated. 21 XIV. 22 To satisfy the requirements set forth in Sections VIII and IX above, Defendants 23 and Relief Defendants may transmit payment electronically to the Commission, 24 which will provide detailed ACH transfer/Fedwire instructions upon request. 25 Payment may also be made directly from a bank account via Pay.gov through the 26 SEC website at http://www.sec.gov/about/offices/ofm.htm. Defendants and Relief 27 Defendants may also pay by certified check, bank cashier’s check, or United States 28 postal money order payable to the Securities and Exchange Commission, which shall 8 1 be delivered or mailed to 2 Enterprise Services Center 3 Accounts Receivable Branch 4 6500 South MacArthur Boulevard 5 Oklahoma City, OK 73169 6 7 and shall be accompanied by a letter identifying the case title, civil action number, 8 and name of this Court; the paying party as a defendant or relief defendant in this 9 action; and specifying that payment is made pursuant to this Final Judgment. 10 Defendants and Relief Defendants shall simultaneously transmit photocopies of 11 evidence of payment and case identifying information to the Commission’s counsel 12 in this action. By making this payment, Defendants and Relief Defendants relinquish 13 all legal and equitable right, title, and interest in such funds and no part of the funds 14 shall be returned to them. 15 The Commission may enforce the Court’s judgment for disgorgement and 16 prejudgment interest against Schumacher, Fat Chance, and ANV by moving for civil 17 contempt (and/or through other collection procedures authorized by law) at any time 18 after 364 days following entry of this Final Judgment. Schumacher, Fat Chance, and 19 ANV shall pay post judgment interest on any delinquent amounts pursuant to 28 20 U.S.C. § 1961. The Commission shall hold the funds, together with any interest and 21 income earned thereon (collectively, the “Fund”), pending further order of the Court. 22 The Commission may propose a plan to distribute the Fund subject to the 23 Court’s approval. Such a plan may provide that the Fund shall be distributed 24 pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 25 2002. The Court shall retain jurisdiction over the administration of any distribution 26 of the Fund. If the Commission staff determines that the Fund will not be distributed, 27 the Commission shall send the funds paid pursuant to this Final Judgment to the 28 United States Treasury. 9 1 Regardless of whether any such Fair Fund distribution is made, amounts 2 ordered to be paid as civil penalties pursuant to this Judgment shall be treated as 3 penalties paid to the government for all purposes, including all tax purposes. To 4 preserve the deterrent effect of the civil penalty, Schumacher shall not, after offset or 5 reduction of any award of compensatory damages in any Related Investor Action 6 based on Defendants’ payment of disgorgement in this action, argue that he is entitled 7 to, nor shall he further benefit by, offset or reduction of such compensatory damages 8 award by the amount of any part of Defendants’ payment of a civil penalty in this 9 action (“Penalty Offset”). If the court in any Related Investor Action grants such a 10 Penalty Offset, Defendants shall, within 30 days after entry of a final order granting 11 the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 12 of the Penalty Offset to the United States Treasury or to a Fair Fund, as the 13 Commission directs. Such a payment shall not be deemed an additional civil penalty 14 and shall not be deemed to change the amount of the civil penalty imposed in this 15 Judgment. For purposes of this paragraph, a “Related Investor Action” means a 16 private damages action brought against Defendants by or on behalf of one or more 17 investors based on substantially the same facts as alleged in the Complaint in this 18 action. XV. 19 20 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court 21 shall retain jurisdiction of this matter for the purposes of enforcing the terms of this 22 Final Judgment. 23 24 25 26 27 28 10 1 XVI. 2 There being no just reason for delay, pursuant to Rule 54(b) of the Federal 3 Rules of Civil Procedure, the Clerk is ordered to enter this Final Judgment forthwith 4 and without further notice. 5 6 7 Dated: _February 21, 2017 _____ 8 ____________________________________ 9 UNITED STATES DISTRICT JUDGE 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1

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